Euro to bring inflation fall

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The Independent Online
THE SINGLE currency could cut euroland's inflation rate by a quarter of a point as greater transparency and competition force prices downwards, according to new research.

But the EU's statistics office will not publish figures which allow direct comparisons of prices for different goods across member countries.

It is due to release 1996 figures at the end of this month but reports prices in one country as a ratio of the average. This will reveal whether prices are moving closer together but not whether they are converging upwards or downwards.

The Commission will be monitoring the unpublished data. It is running a "rounding down" campaign to encourage retailers not to exploit confusion caused by the launch of the euro to push through price rises.

The new report, published today by ING Barings, the City investment bank, predicts that as long as the single currency leads to a levelling down of prices towards the lowest prevailing, it could reduce the inflation rate by 0.25 per cent a year. This would represent a significant fall from today's already low euroland inflation rate of 0.8 per cent.

According to Mark Cliffe, the author of the report: "The potential significance of price convergence is underlined by the sheer scale of the price differentials." He noted that the European Commission has always seen cheaper prices to consumers as one of the key benefits of monetary union.