ECB target value

Inflation in will not fall to 2 percent until mid-2026

Wifo does not expect inflation in Austria to fall to the European Central Bank's target value until mid-2026.

(Bild: Krone KREATIV; stock.adobe.com)

Wifo forecasts that inflation in Austria will not fall to the European Central Bank's (ECB) target value of 2% until mid-2026. According to the current inflation forecast, inflation will slow significantly from 7.8% in 2023 to 3.4% this year and to 2.5% in 2025. Despite this decline, Austria is expected to remain one of the countries with the highest inflation rates in the eurozone.

Among other things, wage developments are partly responsible for the higher inflation in Austria from 2023 than in the eurozone - where wage increases have been much more subdued.

Price indexations for rents, mobile phone tariffs and bank charges are also driving inflation in the services sector.

Real wage increase of 4.2 percent
For 2024, Wifo is forecasting a real wage increase of 4.2%, which will compensate for the real wage loss in the pandemic years 2020 to 2022. The shortage of skilled workers will strengthen the position of the employee side in wage negotiations in order to assert their demands.

For the years 2025 to 2028, the economic research institute expects real wage growth to slow down, as the gap between rolling inflation as the basis for wage demands and expected inflation in the following year will narrow.

As a result, Wifo also expects unit labor costs to rise significantly, albeit at a slower pace (2024: plus 8.1 percent; 2025: plus percent, 2028: plus two percent). Real wages per capita are therefore likely to grow more strongly than productivity in the forecast period from 2024 to 2028.