The Relationship Between Economic Growth And Inflation In

Austria.
1. Inflation
Inflation is a rise in prices, which can be translated as the decline of purchasing
power over time. The rate at which purchasing power drops can be reflected in the
average price increase of a basket of selected goods and services over some period
of time. The rise in prices, which is often expressed as a percentage, means that a
unit of currency effectively buys less than it did in prior periods. Inflation can be
contrasted with deflation, which occurs when prices decline and purchasing power
increases.

2. Inflation and Economic Growth

Inflation aims to measure the overall impact of price changes for a diversified set
of products and services. It allows for a single value representation of the increase
in the price level of goods and services in an economy over a period of time. Prices
rise, which means that one unit of money buys fewer goods and services. This loss
of purchasing power impacts the cost of living for the common public which
ultimately leads to a deceleration in economic growth. The consensus view among
economists is that sustained inflation occurs when a nation's money supply growth
outpaces economic growth.
3. Understanding Inflation

While it is easy to measure the price changes of individual products over time,
human needs extend beyond just one or two products. Individuals need a big and
diversified set of products as well as a host of services for living a comfortable life.
They include commodities like food grains, metal, fuel, utilities like electricity and
transportation, and services like health care, entertainment, and labor.

Inflation aims to measure the overall impact of price changes for a diversified set
of products and services. It allows for a single value representation of the increase
in the price level of goods and services in an economy over a period of time.

Prices rise, which means that one unit of money buys fewer goods and services.
This loss of purchasing power impacts the cost of living for the common public
which ultimately leads to a deceleration in economic growth. The consensus view
among economists is that sustained inflation occurs when a nation's money supply
growth outpaces economic growth.

To combat this, the monetary authority (in most cases, the central bank) takes the
necessary steps to manage the money supply and credit to keep inflation within
permissible limits and keep the economy running smoothly.

Theoretically, monetarism is a popular theory that explains the relation between

inflation and the money supply of an economy. For example, following the
Spanish conquest of the Aztec and Inca empires, massive amounts of gold and
especially silver flowed into the Spanish and other European economies.3 Since
the money supply rapidly increased, the value of money fell, contributing to
rapidly rising prices.

4. Recent inflation Trends in Austria

The annual inflation rate in Austria jumped to 11% in October of 2022, from an
upwardly revised 10.6% a month earlier. It was the highest rate since record began
in 1958, with the strongest upward pressure coming from Housing & Utilities
(19.2%) which include 118% surge in solid fuels prices and 116.9% increase in
gas; transport (16.6%), reflecting a 39.5% increase in fuels costs and 24.1% rise in
used car prices; and Food & Non-alcoholic Beverages (14.4%). On a monthly
basis, consumer prices increased by 1%, easing from 1.6% rise in the previous
month. The harmonized index rose by 11.5% on the year and by 1.2% over the
previous month.

Figure-1
Consumer Price Index

CPI in Austria increased to 114.40 points in September from 112.60 points in

August of 2022.

Figure-2

GDP Deflator

GDP Deflator in Austria increased to 116.13 points in the second quarter of 2022
from 111.83 points in the first quarter of 2022.

Figure-3
Austria Producer Prices

In Austria, the Producer Price Index measures the average change in price of goods and services
sold by manufacturers and producers in the wholesale market during a given period.

Actual Previous Highest Lowest Dates Unit Frequency

124.70 122.40 124.70 84.90 2000 - 2022 points Monthly 2015=100, NSA

Producer Prices in Austria increased to 124.70 points in September from 122.40

points in August of 2022.

Figure-4

Food Inflation

Food Inflation in Austria averaged 2.43 percent from 2012 until 2022, reaching an
all time high of 14.40 percent in October of 2022 and a record low of -1.10 percent
in January of 2021.
 Figure-5

Austria Consumer Price Index (CPI): Transport

Austria Consumer Price Index (CPI): Transport data was reported at 128.400
2020=100 in Oct 2022. This records an increase from the previous number of
127.300 2020=100 for Sep 2022. Austria Consumer Price Index (CPI): Transport
data is updated monthly, averaging 105.150 2020=100 from Jan 2020 to Oct 2022,
with 34 observations. The data reached an all-time high of 131.100 2020=100 in
Jul 2022 and a record low of 98.800 2020=100 in Nov 2020. Austria Consumer
Price Index (CPI): Transport data remains active status in CEIC and is reported by
Statistics Austria. CPI Transportation in Austria averaged 104.64 points from 2015
until 2022, reaching an all time high of 131.10 points in July of 2022 and a record
low of 95.90 points in February of 2016.
 Figure-6

Unemployment in Austria remains low despite high inflation pressures

The official unemployment rate in Austria is just six percent, according to new
figures from the Public Employment Service (AMS). This is the lowest
unemployment figure for 14 years and shows the labour market is withstanding the
current inflationary pressures, reports ORF. At the end of October, 319,232 people
were out of work or in training in Austria – around 22,000 less than one year ago,
and 35,000 less than in the pre-pandemic year of 2019.

Unemployment in industry is currently down by 12 percent and job losses in trade

have reduced by 10 percent. In hospitality and gastronomy, the number of people
registered as unemployed only dropped by one percent, but in the area of
temporary work, the rate was down by 14 percent. In October, the number of job
vacancies across the country was up by 10 percent when compared with October
2021.
This is how unemployment is effecting the economic growth of Austria

Stagflation

Austrian economy ‘slowing down’ as inflation remains high After the strong
expansion in the first half of 2022, the Austrian economy is now in a downturn
phase, according to the Austrian Institute of Economic Research. With inflation
remaining high in 2023, Austria’s economy is heading for stagflation, when the
inflation rate is increasing as economic growth slows, for the first time since
the 1970s. As the global economy weakens, it clouds the outlook for domestic
goods exports and thus for industry and investment in Austria. At the same time,
the marked increase in world market prices for raw materials, energy and
intermediate goods keeps domestic price inflation high and causes real income
losses that dampen private consumption.

Austria Economy Data

The Austrian economy contracted 0.1% quarter on quarter in Q3, swinging from
the sturdy 1.9% expansion logged in on an annual basis, economic growth came in
at 1.8% in the third quarter, markedly down from the increase.

The quarterly contraction reflected flatlining government consumption growthand

a drop in fixed investment Capital outlays were likely affected by depressed
business confidence amid a bleaker economic backdrop due to the war in Ukraine
and elevated price pressures. More positively, household spending expanded 0.6%
over the prior period, swinging from the second quarter’s 0.6% contraction. Private
consumption rebounded despite record-low consumer sentiment and inflation
eroding real incomes.

On the external front, exports of goods and services fell 3.5% quarter on quarter
while imports of goods and services contracted 1.1%. Softening economic
momentum in Germany, a key export market for Austria, weighed on the external
sector.

Austria - GDP per capita (EUR) Data

2015 2016 2017 2018 2019
GDP per capita (EUR) 39,892 40,881 42,008 43,411 44,545

Figure-7
The Austrian economy contracted 0.1% quarter on quarter in Q3, swinging from
the sturdy 1.9% expansion logged in Q2. On an annual basis, economic growth
came in at 1.8% in the third quarter, markedly down from the Q2’s 6.2% increase.

The quarterly contraction reflected flatlining government consumption growth and

a drop in fixed investment. Capital outlays were likely affected by depressed
business confidence amid a bleaker economic backdrop due to the war in Ukraine
and elevated price pressures. More positively, household spending expanded 0.6%
over the prior period, swinging from the second quarter’s 0.6% contraction. Private
consumption rebounded despite record-low consumer sentiment and inflation
eroding real incomes.

On the external front, exports of goods and services fell 3.5% quarter on quarter,
while imports of goods and services contracted 1.1% Softening economic
momentum in Germany, a key export market for Austria, weighed on the external
sector.

Looking ahead-

1. The economy is expected to enter a recession over the winter months.

2. International sanctions on Russia

3. Supply chain problems

4. softer demand from Germany and other European markets, as well as high
commodity prices, will weigh on the industrial sector.
5. More positively, a tighter labor market and the government’s third fiscal relief
package announced in mid-June—should provide some respite for the economy,
although the balance of risks is clearly skewed to the downside.

Austria - Fiscal Balance

The economic impact of the war in Ukraine will increasingly be felt during Q2;
Austrian banks have close ties with Russia, which is also an important market for
the country’s industrial exports. The rate of growth in industrial production already
began to slow in March and is likely to weaken further during Q2, as the war has
both exacerbated supply chain constraints and undermined demand. Although
April’s manufacturing PMI showed both a robust improvement in operating
conditions and positive business confidence, this is unlikely to last. Moreover,
rising commodity prices and uncertainty arising from the war are weighing heavily
on consumer sentiment, which will be negatively affecting household spending.
Meanwhile, in a May report, the European Commission highlighted the public
finances, the labor market and an over-reliance on fossil fuels as key areas for the
government to address.

Austria - Fiscal Balance Data

2015 2016 2017 2018 2019
Fiscal Balance (% of GDP) -1.0 -1.5 -0.8 0.2 0.7
Selected CPI Components

Figure-8

For Austria, a detailed consumer price index (CPI) is published concurrently under
four successive base years. This program is separate from the Eurostat-standard
harmonized CPI.

The consumer price index (CPI) is a measure of general price trends and of
inflation in Austria. In addition to its role as a general indicator of inflation, the
CPI is used for the valorisation of fixed amounts of money (e.g. rents, living costs),
and also provides the data on which wage and salary negotiations are based. Both
consumer price indices are thus key indicators for Austrian and European data
users.
Wholesale Price Index
The index of wholesale prices is one of the most important indicators of price
development.

Figure-9

Figure-10
Conclusion

Inflation can be both beneficial to economic recovery and, in some cases, negative.
If inflation becomes too high, the economy can suffer; conversely, if inflation is
controlled and at reasonable levels, the economy may prosper. With controlled,
lower inflation, employment increases. This economic concept suggests that
inflation and unemployment are inversely related. As such, it states that inflation is
ushered into the economy by growth and expansion. Statistical and econometric
comparative analysis conducted for Austria for period between 1980-2016
showed that low inflation is important but not sufficient factor for economic
growth.