OeNB Confirms: VAT Reduction on Basic Foodstuffs Is Being Passed On Almost in Full

Specifically, the economists found: "The average price reduction corresponds to an almost complete passthrough of the tax reduction to consumers". However, the reduction only affects around 2.9 percent of an average household's expenditure – as the experts note in the paper: "The foodstuffs affected by the tax reduction represent only a small share of total household expenditure".

Legal Basis in the Price Act

The legal basis for the passthrough is anchored in the Price Act. It states: "Where taxes are abolished in whole or in part, prices shall be reduced by these amounts". The Price Act also provides for an "obligation to pass on tax reductions". The Federal Competition Authority (BWB) has also taken up the issue: The sector inquiry had shown that the VAT exemption "was passed on to consumers in full overall", the authority said in a statement.

Trade Margins as an Indicator

The OeNB also analyzed trade margins – that is, the difference between purchase and selling prices in retail. The results indicated that these declined at most companies, "which points to an actual passthrough of the tax relief". In other words: Retail has evidently not used the relief to increase its own margin, but has passed it on to buyers.

Limited Impact on Overall Inflation

However, the OeNB estimates the immediate impact on inflation to be modest. "The tax reduction will temporarily dampen food and overall inflation to a small extent," the experts write. For July 2026, this results in a dampening effect of 0.15 percentage points. For the full year 2026, the OeNB experts expect a reduction of 0.075 percentage points – provided the reduction continues to be passed on to consumers and is not eroded, for example, by other price increases.

At the same time, the Nationalbank pointed out methodological limits of the evaluation so far. There comes a point at which one can "no longer distinguish the relief from other market developments". In other words: once the tax reduction has been in force for a longer period, it becomes increasingly difficult to differentiate its effect from general price developments. The OeNB announced that it would continue to monitor and analyze the impacts in the coming weeks and months.

Concrete Impact for Households

For consumers, the reduction means in concrete terms: Instead of ten percent, only 4.9 percent VAT is now charged on the eligible products. For typical basic foodstuffs such as bread, milk, eggs or flour, this translates – depending on the product – into a noticeably lower shelf price. The reduction is part of a broader relief package designed to cushion the inflationary pressure of recent years.

That the passthrough is actually working is also a signal to retailers. The BWB had launched its sector inquiry precisely with the aim of tracking the price reductions and sanctioning violations of the Price Act. The fact that the authority assesses the passthrough as "complete overall" suggests that companies have so far fulfilled their obligation.

Outlook: Continued Monitoring by the OeNB

The OeNB emphasizes, however, that its analysis represents an initial rapid evaluation. The data basis covers only the first week of July – that is, just a few days after the reduction came into force. Only longer-term data series will show whether retail permanently adheres to the lower VAT rate or whether prices rise again over time. Interactions with promotions, seasonal discounts and general price trends must also be taken into account.

Overall, the OeNB paints a positive picture of the effects observed so far: The tax relief reaches where it is supposed to reach – consumers. At the same time, the dampening effect on overall inflation is modest, because the affected products make up only a small part of the basket of goods.