Main About the Euro Adoption in Lithuania The Euro and the Euro Area Euro Area Prices in the Euro Area

Prices in the Euro Area

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The most worrying drawback of the euro is the potential increase in consumer prices upon introduction. Many citizens of the Member States took the introduction of the euro as a factor that substantially increased inflation (general increase in prices, leading to a drop in the purchasing of a currency). However, statistics and economic studies showed that though some prices did increase, the general impact on inflation was slight and temporary.

What conditioned the impact of the euro on inflation? One factor is business costs related to the adoption of the euro.  Second, some consumer prices are rounded to a number that is attractive from a marketing point of view. A third reason, one that the government will invariably take into serious account, is the attempts to grab a bigger profit from different products and services, because the introduction of the euro in a way provides for the coordination of competition mechanisms in the market: one enterprise will find it risky to raise prices, if their competition does not do the same. However, if there is a probability that everyone raises prices at the same time, no one loses market share and everyone can try to grab a bigger profit. These three factors conditioned a rise in certain prices with the introduction of the euro.

Which consumer goods’ prices increased the most? Essentially, not many consumer goods’ prices went up – mostly in the service sector. The greatest increases were in restaurants and cafes, hair salons, dry-cleaning, automobile repair services, etc. Notwithstanding this, the society and the media jumped to incorrect conclusions regarding a general change of prices. In other words, people perceived inflation as big and created new myths, such as the myth that in Germany the prices denoted in marks were simply rewritten, but now in euro. Essentially, that means that inflation in Germany would be 100% due to the introduction of the euro. However, that is completely incorrect. In reality, the inflation in the euro area was and remained around 2%. The view that the introduction of the euro was the main factor behind the increase in prices emerged due to the fact that when people started using the euro cash, the extraordinary increases for less expensive goods and services of an everyday nature were observed, i.e. a cup of coffee at a cafe, bread, automobile repairs or tickets to events.  The reality is that most prices in the euro area countries remained the same, while, for example, many durable goods like computers, photo products and stereo systems are decreasing in price – partially due to less expensive technologies.