By David Barwick – FRANKFURT (Econostream) – Inflation developments and their domestic drivers still require vigilance despite Austria’s inflation rate moving much closer to the euro area average, European Central Bank Governing Council member and Oesterreichische Nationalbank Governor Martin Kocher said Friday.

The remarks came one day after the ECB raised the deposit rate by 25bp to 2.50%, citing inflation pressures generated by the conflict in the Middle East and an overshoot expected to persist for an extended period.

“The inflation gap between Austria and the euro area is narrowing significantly according to our forecast,” Kocher said in a statement. While Austrian inflation was 1.4 percentage points above the euro area average in 2025 following the expiry of the electricity price cap, the difference averaged only 0.3 percentage points during the first eight months of 2026, he said.

“For the coming years, our forecast indicates that domestic inflation will develop largely in step with that of the euro area,” Kocher said. “Given the risks that continue to exist, however, vigilance is still required regarding inflation developments and their national drivers.”

The OeNB forecast Austrian HICP inflation at 3.0% in 2026, before declining to 2.3% in 2027 and 2.2% in 2028. The expected weakening of the energy shock from the second quarter of 2027 would help reduce energy inflation to 1.0% next year from 6.5% this year, the central bank said.

Turning to the Austrian economy, Kocher said industrial orders and sentiment had improved since June despite disruption from the Middle East conflict. The OeNB forecast GDP growth of 0.5% in 2026 and 1.3% in 2027, while leaving its 2028 projection unchanged at 1.2%.

“Overall, despite the difficult environment, the positive signals for Austria’s economic development predominate,” Kocher said. The summer drought was nevertheless expected to reduce 2026 growth by 0.1 percentage points, he said.

The OeNB forecast Austria’s registered unemployment rate at 7.5% in 2026, declining to 7.3% in 2027 and 7.1% in 2028.