Inflation fell to 2.8 percent in July, slowed by VAT reduction

Austria's inflation rate eased to 2.8 percent in July, a noticeable decrease from the previous month's 3.2 percent, primarily driven by government measures to curb rising prices. A key factor was the reduction of the value-added tax (VAT) on basic foodstuffs.

The VAT on essential food items was lowered from 10 percent to 4.9 percent starting July 1, 2026. This measure is credited with contributing roughly half of the overall decline in inflation. "Around half of the decline is attributable to the slightly lower food prices," stated Manuela Lenk, Director General of Statistics Austria. This has made daily grocery shopping more affordable compared to the previous year.

However, not all sectors experienced price relief. Transportation costs surged by 6.4 percent, making it a significant driver of inflation. Housing, including rent, also saw an increase of 2.7 percent, with rents rising by 4.4 percent. The hospitality and accommodation sector experienced a 4.6 percent price increase.

Adding to the cost pressures, the government itself increased federal fees starting July 1, 2026. For instance, the cost of a passport rose from 75.90 euros to 112 euros, and municipal fees also saw substantial jumps. While the VAT reduction offered some relief on groceries, the overall cost of living continues to be impacted by rising transportation and housing expenses, alongside new government charges.

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Around half of the decline is attributable to the slightly lower food prices. The reduction of the value-added tax from ten percent to 4.9 percent on basic foodstuffs from July 1, 2026, played a significant role.