5

Many consumers in the European Union are afraid of switching to Euros since it (reportedly) means increased prices on most products. For example:

In order to address consumers' concerns about price increases and abusive practices during the changeover period, a campaign called the Memorandum on Good Business Practice upon the Introduction of the Euro was launched in August.

Is there any causation between switching currencies and a significant increase in prices?

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    Which countries and which products? Also, does the issue of subsidies enter into this? – user5341 Dec 10 '14 at 19:11
  • The question can be limited to countries which adopted the euro post-1999: Slovenia, Cyprus, Malta, Slovakia, Estonia, Latvia, Lithuania – JonathanReez Supports Monica Dec 10 '14 at 19:25
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    I wonder if this effect (if any) is any more than retailers using it as a convenient time to introduce inevitable inflation adjustments - i.e. it will even out over, say, a year. – Oddthinking Dec 10 '14 at 22:47
  • There's some confusion - see edit history - between the title (about causation), the claim (seems to be about causation) and the last line (which only asks about correlation). – Oddthinking Dec 11 '14 at 2:48
  • @Oddthinking question fixed – JonathanReez Supports Monica Dec 11 '14 at 13:40
11

Yes and No

According to numerous studies some of more visible prices go up significantly, however overall the price increase is very limited.

OECD paper analyzing the subject few months before Slovakia switched to Euro and predicting what effect it could have on Slovak economy:

THE EURO CHANGEOVER IN THE SLOVAK REPUBLIC: IMPLICATIONS FOR INFLATION AND INTEREST RATES

by Felix Hüfner and Isabell Koske

[...]

The cash changeover can be expected to lead to significant price increases in a number of sectors, most notably in sectors related to recreational activities. The impact on the aggregate HICP, however, is likely to be small. Applying the experience of existing euro area member countries on the case of the Slovak Republic, the cash changeover is estimated to increase aggregate consumer prices by 0.32 percent between July 2008 and July 2009.

[...]

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Most empirical studies on the price level effect of the euro changeover focus on individual euro area member countries. Examples include: Buchwald et al. (2002), Chlumsky and Engelhardt (2002) and Deutsche Bundesbank (2002, 2004) for Germany; Folkertsma et al. (2002) for the Netherlands; National Bank of Belgium (2002) for Belgium; Pollan (2002) for Austria; Santos et al. (2002) for Portugal; and, more recently, Eurostat (2007) and the Institute of Macroeconomic Analysis and Development (IMAD) (2007) for Slovenia; and Eurostat (2008) for Malta. These studies commonly find that price increases were not a general phenomenon but limited to certain categories of goods and services, so that their impact on aggregate consumer price inflation was modest. Most studies estimate the effect at around 0.2 to 0.3 percent which is in line with the estimate published by Eurostat (2003) for the euro area as a whole (see Table 1). Nonetheless, prices have risen markedly in some sectors, particularly in some service sectors where the above mentioned studies have singled out restaurants and catering, hairdressers, cinemas, and dry cleaning as sectors with significant price increases.

Actual effect in Slovakia was even lower than predicted in the paper, overall price hike of 0.2%.

1

I am Italian, and can confirm that most of the prices doubled in the two years after the introduction of the Euro.

For the first year we had double currency, with merchants forced to show both prices. In that period prices stayed basically unchanged.

On the second year the double pricing stopped and most commodities went up rapidly. The merchants played on the habits of people and visual impact of prices. I'll try to explain:

Say a piece of bread was 500 Lire (Italy's currency). People are used to see 500 on the price tag. Post Euro, the bread was 50 cents. Now people would still see "5" and unconsciously think it's the same price.

It's the same logic behind X.99 prices: people tend to see just the first digit, so 4.99 "feels" like 4 instead of 5.

This way, raises went (almost) unnoticed, until people people found their purse was much lighter at the end of the month. 1 EUR was 1936.27 Lire hence selling bread at 50 euro cents is 968.14 Lire i.e. almost double price!

Friends from Spain and Greece confirmed the same happened to their countries.

At the page http://www.aduc.it/comunicato/prezzi+aumento+pane+responsabili+commercianti_12447.php you can read an official report from ADUC (Italy's Consumers Association) where it states that the price of bread went up from 1.03 to 2.5 EUR/Kg between 1995 and 2006 (an increase of 380%). The news also states that the increase in prices was due to merchants rather than increase in resources.

PRICE TREND OF BREAD AND WHEAT IN ITALY
Price in euro per Kg
1985 - wheat 0,23; bread 0,52
1990 - wheat 0,19 (-18%); bread 0,83 (+60%)
1995 - wheat 0,16 (-31%); bread 1,03 (+98%)
2006 - wheat 0,15 (-35%); bread 2,5 (+380%)
2007 - wheat 0,22 (-5%); bread 2,7 (+419%)
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    The high inflation between 1985 and 1995 shows that adopting the Euro in 1999 was unlikely to cause significant price increases on it's own. – JonathanReez Supports Monica Dec 11 '14 at 16:57
  • @JonathanReez The "adoption of Euro" itself was not a direct cause, but it helped the merchants to raise the prices. In an imaginary world where statistics effectively represents what happens, you may be right. But we've seen prices double within a week. That's not inflation. – algiogia Dec 12 '14 at 10:09
  • My question is specifically about whether the public perception of prices increasing after switching to Euro is wrong. Therefore personal experiences are hard to accept as an answer. – JonathanReez Supports Monica Dec 12 '14 at 10:48
  • I posted a link to an official article stating that the prices DID increase after the introduction of Euro. If you won't believe that, than what? – algiogia Dec 12 '14 at 10:54
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    It seems that bread prices were already rising rapidly before the introduction of the Euro, therefore it's hard to see if anything changed back in 1999. A good answer would compare bread prices in 1997, 1998, 1999 and 2000, not just 1995-2006. – JonathanReez Supports Monica Dec 12 '14 at 11:09

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