Inflation Is Rising: Why This Winter Will Be Expensive
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The war in Iran is showing up at the pump and in the heating oil tank: Inflation rose sharply in September in Austria, the eurozone and the United States. On Friday, Statistics Austria confirmed its flash estimate that the country’s inflation rate climbed to 3.6 percent, up from 3.2 percent in August. Excluding fuel and heating oil, it would have been only 2.4 percent. The picture is similar in the eurozone and the United States.
The Numbers at a Glance
| Region | September | August | Energy |
|---|---|---|---|
| Austria (CPI) | 3.6% | 3.2% | +14.5% |
| Eurozone (HICP, flash estimate) | 3.8% | 3.2% | +18.8% |
| United States (CPI) | 3.7% | 3.4% | +20.4% |
In Austria, fuel cost 34.8 percent more than a year earlier, and heating oil a whopping 63.1 percent more. The “mini basket,” which tracks weekly shopping including fuel, rose 6 percent. The “micro basket” for daily shopping actually got cheaper, and food prices rose only 0.4 percent. Electricity cost 9.1 percent less because levies were cut.
In the eurozone, inflation is at its highest level since 2023, according to Eurostat, driven by an 18.8 percent jump in energy prices, as Trending Topics reported in early October. Lithuania has the highest rate, at 6.1 percent. In the United States, gasoline prices rose 34.2 percent from a year earlier and heating oil 74.2 percent. On Thursday, U.S. producer prices also rose sharply.
The Cause: Oil Is Scarce
The war in Iran is behind the price surge. Oil exports from the Gulf region in September were only just over three-quarters of prewar levels, and refined products such as diesel and heating oil were below half, according to the International Energy Agency. In mid-September, a key pipeline in Saudi Arabia was also bombed, and tanker freight rates hit record highs. North Sea Brent crude averaged almost $117 (about €104) a barrel in September, and wholesale diesel hit record prices.
Gas has become more expensive, too. The futures contract for November delivery recently traded at about €87 per megawatt-hour, roughly double the spring level and the highest in about four years.
What It Means for the Winter
There is no quick relief in sight. The I.E.A. expects diesel and heating oil to remain tight in the fourth quarter as refineries go into maintenance and winter demand rises. Inventories will not be replenished until the second half of 2027, it says. G7 countries have therefore agreed to accelerate releases from strategic reserves, with a focus on diesel.
In Austria, gas supply is secure, with storage about 69 percent full. “We reached our storage target long ago,” said Carola Millgramm, head of the gas department at the regulator E-Control. Households will still feel the prices once their price guarantees expire. “We will all feel the higher prices,” said the gas expert Walter Boltz. Industrial companies are already paying the higher prices in full.
Economists at the Austrian institutes WIFO and IHS recently raised their forecasts. WIFO expects inflation of 3.3 percent this year and 2.6 percent in 2027, while IHS expects 3.1 percent and 2.8 percent. That means inflation will remain well above the European Central Bank’s 2 percent target next year as well. Real wages are likely to fall this year, and private consumption remains weak.
In the United States, the Energy Information Administration expects households that heat with oil to spend about 21 percent more this winter. Those heating with natural gas are likely to pay somewhat less than last year.
The Central Banks
The situation is a difficult one for central banks. The E.C.B. raised interest rates in September for the second time this year, bringing its deposit rate to 2.5 percent. Its next meeting is at the end of October, and markets see another rate increase in December as likely. The U.S. Federal Reserve also raised rates in September.
Christine Lagarde, the E.C.B.’s president, offered reassurance on one point: “At the moment we see no evidence that energy prices are feeding through to wages.” Indeed, core inflation excluding energy and food is significantly lower in the eurozone, at 2.5 percent, and in Austria, services inflation recently eased slightly to 4.2 percent. The E.I.A. also expects oil prices to fall to an average of $84 (about €75) a barrel next year. Until then, though, drivers and households with oil heating will have to get through an expensive winter.
