Austria: Inflation and politics are heating up - ING

Inga Burk, Economist at ING, notes that the Austria’s inflation increased further and stood at 1.3% YoY in October.

Key Quotes

“According to the Austrian statistical agency, headline inflation came in at 1.3% YoY in October, from 0.9% YoY in September. This is the highest value since November 2014. The acceleration was once again driven by higher expenses on restaurant services and accommodation whilst fuels no longer proved to be the main price dampener. On a monthly basis, inflation came in at 0.3%, with clothing and footwear being the main price driver. Turning to the HICP measure of inflation, prices rose by 0.4% on the month, while the inflation rate climbed to 1.4% YoY from 1.1% YoY in September. Despite rising inflation in the last months of the year, real disposable incomes should still have risen throughout 2016, due to the government’s tax reform.”

“Last week, Statistics Austria published a report about well-being in Austria. Although general life satisfaction is high, the divergence of low and high annual income levels as well as the general disparity in wealth and assets remains a cause of concern. The latter obviously plays into the hands of populists parties. The notion that parts of the population feel left behind as the economy remains weak and unemployment is rising has been one of the main drivers for the recent emergence of populist parties across Europe. Even though the Austrian president is a rather representative function and will hardly affect economic policies, the theme of growing divergences is also alive in the Austrian election campaign. Currently, polls show that 52% would vote for right-wing candidate Norbert Hofer, while 48% prefer independent candidate Alexander Van der Bellen. Some Austrian observers might currently wish that these polls are as reliable as the polls in the UK and the US.”

“Anyhow, we cannot and will not predict the outcome of the presidential race. It is simply too close to call. One thing, however, is for sure. Since the Trump victory, markets will have an even closer look at political developments in Europe. In this regards, the Austrian elections on 4 December will clearly get much more international attention than normal.”