Food prices set to rise even further in Austria

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Food prices will continue to rise in the coming years. The Austrian Institute of Economic Research (Wifo) expects an average increase of 3.2 percent for 2026.

Debate on VAT reduction

Wifo economists expect food prices (including alcohol and tobacco) to rise by an annual average of 3.2 percent in the coming year. A detailed analysis of the current Wifo economic forecast indicates that an increase of 3.8 percent is predicted for this year.

According to the Wifo forecast, energy prices (+4.8 percent) and services (+4.4 percent) will rise particularly sharply in the current year. The services group includes catering and hotels, rents, personal services (hairdressers, nail salons) and public sector fees.

Food inflation remains high

Since June, the rise in food prices has been contributing more strongly to overall inflation, writes Wifo economist Josef Baumgartner in the “Research Brief” published on Friday. Baumgartner sees three main reasons for this: Fresh vegetables and fruit saw a smaller seasonal price decline due to a poorer harvest. Low supply in the low-price segment for meat led to a sharper rise in meat prices due to lower imports from Hungary and Slovakia as a result of foot-and-mouth disease. Furthermore, significant price increases were recorded due to crop failures for olives and olive oil (especially in Spain) and for coffee, cocoa, and oranges (juice concentrate) imported from overseas.

Debates about reducing VAT on food

As announced last Tuesday in the Wifo autumn forecast, economic researchers expect an inflation rate of 3.5 percent in Austria for 2025 and 2.4 percent for 2026. The current comparatively high inflation rate has recently prompted politicians and economists to put forward numerous ideas, such as reducing the tax rate on food and rent. SPÖ leader and Vice-Chancellor Andreas Babler can imagine a reduction in VAT on food, but his party colleague and Finance Minister Markus Marterbauer is skeptical. IHS head Holger Bonin is also against a reduction, while Wifo head Gabriel Felbermayr is in favor, with the reduction being financed by an increase in the standard tax rate.

Energy continues to drive inflation

In the fourth quarter of 2024, inflation in Austria reached the European Central Bank’s (ECB) inflation target of 2 percent. According to Wifo, the rise in inflation to 3.1 percent in the first half of 2025 is mainly due to the changes in the energy sector initiated by the former ÖVP-Green federal government at the beginning of the year. These include the expiry of the electricity price cap, the reintroduction of green electricity subsidies and flat rates, the reduction of energy taxes on electricity and gas to their original levels, a significant increase in grid fees (for electricity and gas), and an increase in CO₂ pricing for fuels, heating oil, and natural gas. According to Wifo, these price increases will remain as base effects in the inflation calculation in 2025. From December 2025 to January 2026, economic researchers therefore expect a decline in the contribution to inflation, particularly from the electricity sector, of around 0.75 to 1 percentage point.

In its autumn forecast, Wifo raised its expected inflation rate for energy in the current year from 2.8 percent (June forecast) to 4.8 percent. According to Wifo economist Baumgarter, this was due to the development of mineral oil prices and higher electricity prices.