Switch to euro bumped up prices, admits Duisenberg

John Lichfield
Saturday 28 December 2002 01:00
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The switch to the single currency has led to steep price rises for some household goods, Wim Duisenberg, the head of the European Central Bank, has admitted.

Overall, inflation in the 12 eurozone countries has been low, he said, because the official calculations have included relatively invisible products, such as insurance and other financial services.

But there have been much steeper rises in most countries for some high-profile everyday items and consumer hardware. "We have been reluctant to recognise that the switchover has caused something of a rise in prices," he told Dutch television. "We just should have been more honest about that. Then we could also have explained that the effect would stay limited for the entire goods basket."

Since the launch of the euro as a physical currency almost a year ago, EU officials have insisted that its inflationary impact has been negligible. A recent study by Eurostat, the EU statistics agency, found the change had contributed between zero and 0.2 per cent to consumer price inflation.

Mr Duisenberg said these figures were accurate because they measured price rises right across the range of goods and services from food to holidays. But he said European officials should have admitted something that was obvious to consumer groups and ordinary shoppers in a lot of euro-zone countries: many manufacturers and retailers, hotels and restaurants have taken advantage of the unfamiliarity of the new currency to increase their prices sharply.

A recent survey by a French consumer group found that a basket of everyday items, from nappies to electrical goods, had increased in price by more than 8 per cent in the past 18 months and some items had risen by more than 30 per cent.

An opinion poll published this month in France revealed that 96 per cent of French citizens were convinced that the euro had brought higher prices. Other surveys show that about 60 per cent of people in Euro-zone countries believe the currency has been inflationary.

There have been complaints about euro-inflation in Germany, Italy and Greece. These countries, as well as Belgium and Austria, have been pushing the European Central Bank to introduce a one euro (64p) note.

They believe the decision to print no notes smaller than five euros has contributed, to the belief that the euro is inflationary. People tend to value notes more than coins and spend them more cautiously.

The overall rate of inflation in the eurozone countries is running at about 2.2 per cent ­ just above the European Central Bank's 2 per cent target. European officials fear, however, that the widespread belief that inflation is higher could prove self-fulfilling, by boosting wage demands.

The polls show no sign of a widespread popular rejection of the currency. Although 55 per cent of the French, for instance, say they are not yet entirely comfortable with the euro, more than 70 per cent say they believe the currency is a good thing for France and Europe.

But only 15 per cent of those questioned by Le Parisien newspaper this month declared themselves to be "very fond" of the euro and only 35 per cent said they were "quite fond". Almost 80 per cent of citizens questioned said they still thought in terms of francs and wanted dual pricing of goods ­ due to disappear next month ­ to continue into next year.

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