"REPORT" from Bank Austria Economics:
Inflation one quarter higher in Austria than in Germany – higher rents driving prices up

  • Since mid-2009, consumer prices have risen by 10.7 per cent in Austria as against only 7.5 per cent in Germany
  • In a historical comparison, however, an inflation rate of 2.3 per cent for the past five years is still below the average for the last 50 years
  • The rise in inflation since 2009 has mainly been fuelled by the Transport, Living and Food expenditure categories
  • Rents driving prices up: At 16 per cent, the increase in rental costs has been three times that of Germany and clearly signals the need for action on housing policy – 320,000 tenants in privately rented accommodation are being hit particularly hard
  • Inflation forecast for 2013: 1.9 per cent

One topic tackled in the current issue of Bank Austria's "REPORT" is the subject of inflation. The analysis reveals that consumer prices have risen by 10.7 per cent in Austria since 2009, around a quarter faster than in Germany, where they have increased by a mere 7.5 per cent since mid-2009. The rise in inflation since 2009 has been fuelled by the Transport, Living and Food expenditure categories. Transport made up 20 per cent of inflation, with Living and Food responsible for 17 and 12 per cent respectively. In the Living category, the sharpest rise was in the rents paid since mid-2009: Austrian rents increased by 16 per cent over this period, as against a mere 5 per cent in Germany. "It is not so much the extent of the price rises in absolute terms that is making inflation felt and a financial burden; rather it is the fact that prices are rising while incomes are stagnating in some cases", said Stefan Bruckbauer, Bank Austria's chief economist, analysing the situation. "Particularly in a very sensitive area – Living – prices rose faster in Austria than in Germany."

Although by the third quarter of 2011 consumer prices had climbed to a very high year-on-year figure of 3.5 per cent from their most recent low in mid-2009 in the course of the economic upturn that followed, since then they have been stuck around the 2 per cent mark as an annual average. "Inflation in Austria has many different causes, from global trends right down to local market conditions", Bruckbauer concluded. "However, a lending boom triggered by the ECB is not one of them. We are therefore anticipating an inflation rate of only 1.9 per cent in 2013." Looked at historically, inflation over the past five years, at 2.3 per cent, has been only slightly above the average for the last 20 years (2.2 per cent) and even below that for the last 50 (3.6 per cent).

Bank Austria's economists have analysed the background to and impact of the unusually rapid increase in the burden facing tenants. While consumer spending has risen by 13 per cent overall in nominal terms since 2007, living costs have increased by 16 per cent, with spending on rented accommodation up by as much as 25 per cent. Despite the wide-ranging regulation of the rental market, rents are still rising at an above-average rate, a clear sign that action is needed in terms of housing policy. Even as late as 2012, rents were increasing by a market average of 4.4 per cent while inflation was at 2.6 per cent. Although inflation will ease off across the board in 2013, rents will nevertheless continue to outpace overall consumer prices. The rent rise is expected to hit 3 per cent, compared with inflation of 1.9 per cent. This will hit some 320,000 tenants in privately rented accommodation particularly hard.

Bank Austria economist Walter Pudschedl: "Although there are many reasons behind the rise in rents over the past few years, the main one has been growth in demand for cheap rented accommodation outstripping supply quite considerably. A number of factors have been in play here: the fall in the percentage of subsidised newbuilds, the diverting of subsidies from new construction to renovation, and the fact that the renovation boom has actually accelerated price rises, particularly in the rented sector. And, last but not least, the sharp increases in housing prices seen in some parts of the market have triggered significant increases in rental costs."

"Despite the hike in rents over the past few years, housing remains affordable in Austria compared with other European countries", stressed Bank Austria economist Günter Wolf. This is reflected in, for instance, the relatively low percentage of the population who feel "unable to cope" with their living costs. Some 19 per cent of Austrians are in the bottom income quintile, whereas the average for all 27 EU member states is 36 per cent. "However", Wolf continued, "the fact that Austria still enjoys a favourable position internationally in terms of living costs must not be allowed to overshadow the growing number of low-income households whose livelihoods are being threatened by an increase in the cost of living." Of the 1.1 million people in Austria at risk of poverty, just under one-third are renting private accommodation at above-average rates, and this figure is rising. After deducting the cost of living from income, the percentage of the total population at risk of poverty rises from 12 to around 26 per cent. In 2007, the figure was some 24 per cent. According to EU-SILC (Statistics on Income and Living Conditions), households at risk of poverty have a disposable income of less than 60 per cent of the national median: In the case of one-person households, for example, this would equate to less than EUR 12,800 including all welfare benefits, among them housing benefit.

Enquiries: Bank Austria Economics & Market Analysis Austria
Stefan Bruckbauer, Tel.: +43 (0) 50505 - 41951
E-mail: stefan.bruckbauer@unicreditgroup.at