Services inflation in Austria has been stubborn. Energy and food prices have long stopped rising at the pace of 2022, but services, which make up half of the Austrian consumer basket, are still getting more expensive by more than 4% a year. Hochmuth and Petz (2026) offer an explanation for the euro area: before the pandemic, services became steadily more expensive relative to goods, the surge of goods prices in 2021 and 2022 pushed this relative price far below its trend, and part of today’s services inflation is services prices catching up. Their error correction model says how fast that happens.
This post applies their model to Austria. The reproduction of the paper covers the euro area in detail, and its results serve as the benchmark here. The short answer is that the explanation does not carry over: in Austria the relative price of services has already returned to its trend and gone beyond it. A closer look shows that most of this is due to one item that weighs much more in Austria than elsewhere: restaurants and cafés.
A comparison between the models one happens to have written down answers a narrow question: which of them fits and forecasts best. It does not answer whether any of them is worth using. The benchmark for that is the forecast somebody actually published and was held to. This post runs that comparison for Austria, where three Bayesian VAR models compete against the projections of the European Commission, the ECB, the IHS, the IMF, the Austrian central bank and WIFO – and against the simplest competitor of them all, which is to carry the last observation forward.