The sharply increased oil prices due to the Iran war are causing the consumer price index (CPI) to rise significantly. According to a quick estimate, the inflation rate climbed to 3.1 percent in March, while in February the inflation was still at 2.2 percent. "The increase of 0.9 percentage points is almost entirely due to the price surges in fuels and heating oil," explained Statistics Austria on Tuesday. In March, energy became 6.1 percent more expensive compared to the same month last year.

Services played a role

According to a quick estimate by Statistics Austria, food, tobacco, and alcohol cost 2.4 percent more. "However, the most important driver of inflation remained services, which became 4.5 percent more expensive in March, after a price increase of 4.0 percent in February," said Statistics Austria Director General Manuela Lenk in a statement. Details on the inflation development in March will be announced by the statistics authority in mid-April.

Wifo inflation expert Josef Baumgartner does not expect a wave of inflation like 2022/2023 for the current year, as gas prices have not risen as sharply so far. He expects an inflation rate in Austria "of slightly below three percent" for this year. The assumption for the inflation forecast is that the Iran war will end and oil prices will "normalize again" from June, Baumgartner told APA. For gas, the expert expects higher prices in the long term, as the supply remains somewhat restricted due to damage to LNG facilities in Qatar and gas facilities in Saudi Arabia.

The Wifo economist expects a stronger increase in food prices, especially from the summer with the new harvest, for example in fresh vegetables, grains, and fruits. The Iran war has caused diesel and fertilizer prices to rise sharply, significantly increasing the production costs of agriculture.

2.7 percent forecasted on average for the year

The Austrian National Bank (OeNB) recently forecasted that the inflation rate will average 2.7 percent for the year. For the following two years, a decline in the inflation rate to 2.3 (2027) and 2.1 (2028) percent is expected. However, due to the high uncertainty surrounding the Iran war, there are significant upward risks for the expectations.

The war between the USA and Israel against Iran, ongoing since the end of February, has driven up oil and gas prices. Iran has largely closed the Strait of Hormuz: a fifth of the global oil consumption is transported through the strait. This is causing shortages, which is why world market prices have risen.

The Brent crude oil price surged from 72 US dollars to up to 120 US dollars (104 euros) per barrel at the beginning of the Iran war and was recently quoted at 107 dollars. Prices at Austrian gas stations have risen sharply since the outbreak of the Middle East war. The diesel price has climbed by almost 70 cents to 2.25 euros per liter on average since the end of February, and the price for gasoline increased by 40 cents to 1.91 euros.

(APA/Red)

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