Wifo forecasts rising inflation again in July

According to data from Statistik Austria, inflation in Austria fell to 3.2 percent in June. In May, the inflation rate was 3.2 percent. The Harmonised Index of Consumer Prices (HICP) at European level also stood at 3.2 percent in June. Compared to the previous month, the overall price level fell by 0.1 percent in June.

Background: Hope for May peak

Following the start of peace negotiations between the US and Iran and the announcement of the opening of the Strait of Hormuz, the assessment had been that inflation may have reached its peak in May at 3.7 percent – provided the peace held. This hope has been dashed by recent developments, Baumgartner explained.

In the previous month of June, price increases for fuels eased significantly according to Statistik Austria: they rose by only 16.3 percent, after having gained 26.5 percent in May. Overall, however, transport (plus 6.5 percent) remained the strongest price driver of inflation. Air ticket prices, for example, continued their rise, becoming 22.4 percent more expensive in June.

Energy prices: Electricity dampens, gas and district heating drive

Pressure from heating oil prices eased noticeably; in June, prices rose by 32.6 percent, after plus 53.7 percent in May. Electricity in particular acted as an inflation dampener in June, with prices falling by 10.2 percent. This also helped household energy prices, which overall fell by 0.4 percent. Gas, on the other hand, became 4.6 percent more expensive, district heating by 1.9 percent, and solid fuels by 11.1 percent.

The reductions in the electricity tax and the renewable energy surcharge effective from January 2026 would continue to have a price-dampening effect, Statistik Austria wrote. Overall, prices in the category of housing, water, electricity, gas, and other fuels rose by 3.0 percent.

The situation eased slightly for food: food and non-alcoholic beverages became 1.3 percent more expensive and thus less sharply than in May (2.2 percent). Non-alcoholic beverages became 0.3 percent cheaper – helped here by lower coffee prices (minus 0.5 percent). Meat became 2.6 percent more expensive, cereals and cereal products 2.2 percent, fruit 2.9 percent, and milk and eggs 1.5 percent.

Food and services

In other areas, price pressure remained high: prices for inpatient health services rose by 4.9 percent, and those for outpatient health services increased by 7.4 percent. Restaurant and accommodation services, for example, became 4.5 percent more expensive in June. By contrast, the price level of the mini basket of goods, which represents a weekly shopping trip and contains, in addition to food and services, also fuels, rose by 3.7 percent year-on-year.

Inflation in the eurozone also weakened in June. Consumer prices rose by 2.8 percent year-on-year, Eurostat announced on Friday in Luxembourg following a second estimate. The rate of price increases in the currency area thus remains below the Austrian figure.

Eurozone and political reactions

FPÖ economic spokesperson Barbara Kolm expressed pleasure at the less sharp rise in prices, but criticised the structural problems of the business location, which would continue to exist "mangels Reformen unverändert". Despite the decline in June, she sees no reason to give the all-clear.

In the US, consumer sentiment initially rose surprisingly in July: the University of Michigan Consumer Sentiment Index rose by 4.9 points to 54.4 points in its preliminary July estimate. Economists had on average expected only an increase to 51.0 points. Both consumer expectations and in particular the assessment of the current situation improved in the July reading. Lower fuel prices were cited as the main driver of improved sentiment.

US consumer sentiment: brief recovery with warning signs

Joanne Hsu, director of the University of Michigan survey, however, warned that maintaining the positive sentiment could become difficult if the recent declines in gasoline prices were to reverse on a lasting basis. "Daher könnte es als schwierig erweisen, die positive Stimmung aufrechtzuerhalten, sollten sich die jüngsten Rückgänge der Benzinpreise anhaltend umkehren", Hsu said. More than 70 percent of survey interviews were completed before the resumption of US airstrikes on Iran on 7 July and the subsequent rise in gasoline prices.

US consumers' one-year inflation expectations fell from 4.6 percent to 4.2 percent. Long-term inflation expectations (5 to 10 years) remained at 3.3 percent. The US Federal Reserve is targeting an inflation rate of 2 percent. US inflation had fallen to 3.5 percent in June. The surveys for this publication were conducted from 23 June to 13 July.

The preliminary July estimate of the Michigan Consumer Sentiment Index was released on a Friday. The index is based on a telephone survey of around 500 households and measures US consumer behaviour. The survey asks respondents about their financial and economic situation as well as the related expectations.

Developments in the energy markets thus remain the decisive factor for the further inflation dynamic in Austria and the eurozone. Should the geopolitical situation calm down and oil supply remain stable, the rate of price increases could resume its downward trend in the coming months. In the event of a further escalation of the conflict, however, new price increases threaten that would completely undo the recent decline.

The coming weeks will show whether the June decline in inflation is a sustained trend or merely a brief pause. Baumgartner's forecast for July points more toward the latter. Consumers in Austria must likely prepare for continued high prices, particularly at the fuel pumps and for energy products.