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Thread: Has the Euro made everything more expensive ?

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    Post Has the Euro made everything more expensive ?



    According to the Belgian RTBF TV channel (state-funded equivalent of the BBC), it hasn't. A special programme a few days ago announced that 90% of the Belgians, and 95% of the French and Italians were convinced that the euro had caused prices to soar.

    A team of journalist investigated on the matter, and compared priced of daily commodities in late 2001 (just before the euro), and late 2005. The results were shocking. Not only have the prices not increased more than the official inflation of 2% a year, but some supermarket products even ended up being cheaper than 4 years ago. They filled up a shopping cart at random in a supermarket, then compared the total sum to pay with what it would have cost in 2001 (asking the supermarket management for historical prices). Whereas some products like beer and bottled water have indeed become much more expensive (up 30%), others like some kinds of bread or toilet paper have become cheaper. Overall, out of 3 shopping carts in 3 different supermarkets, 2 were cheaper in 2005 than in 2001.

    They noted that many cafes and restaurants had indeed disproportionately increased their prices by rounding up prices to the next euro (in other words, cheated their customers). So a drink that used to cost 0.65 euro was often rounded up to 1 euro, which is a serious increase. But that is only due to cafes and restaurants owners' own decision, as prices elsewhere have not been rounded up like that.


    My personal experience of the euro is not the same as most European's. I went to live in Japan just a few months before the euro, only to come back in late 2005. I can thus compare my image of the prices exactly as it was 4 years ago and now. After nearly 2 months here, my image was that many things were cheaper than I had remembered, which surprised me hearing everybody around me saying that life had gotten so expensive. Petrol and it's derived products (plastic...) or services (buses, ait travel...) have of course got dearer. But this is not a European phenomenon, and even less caused by the euro.

    Compared to prices in Tokyo, life in Belgium really seem so cheap (although salaries are similar). 1 liter of milk is 2x cheaper, cheese and yoghurts are 3 to 4x cheaper, cereals are 2x cheaper except muesli which is 4 to 5x cheaper, bottled water is still several times cheaper (although it did get a bit more expensive), meat is 2 to 3x cheaper, and some fruits are 5 to 20x cheaper ! With more and more products made in China, clothes and electronics have generally got cheaper or only slightly more expensive.

    One thing that did get noticeably more expensive is real estate, but that is due to low interest rates and unstable stock-exchange performances. Now, the nice suburbs of southern Brussels have got more expensive than central Tokyo.

    In conclusion, most Euro-zoners' impression that the euro has caused prices to skyrocket is unjustfied. I believe that they have been fooled by external causes (increased oil prices, low interest rates...) and their own inability to translate prices from their old national currency into euro properly. Many of the interviewees complained that prices in euro seemed so cheap, and that consequently they used more money than before because they were not yet used to it. A eurobarometer showed that 36% of the Belgians indeed spent more by not realising how much things really cost.

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    In some countries such as Italy for example, and in a slighter extent even here in Belgium, some sales people and shop owners have abused the coming of the Euro by rounding up prices. However, I don't see this the fault of the introduction of the Euro. If there was real abuse national governments should have taken steps to curb this instead of having local politicans blame the EU about this. Is not like the European Central Bank can send its employees out there throughout Europe to enforce fair pricing. I think the Euro is actually more advantagous to the consumer because he/she can now have a real comparison of vaule between goods in different nations within the EU and see where overpricing exists.

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    Small shop keepers or restaurant owners may indeed have rounded up prices, but usually not chain shops, supermarkets and big companies. This will only make small shops less competitive, and once people will have realised that it's cheaper in chains, it will only hurt the initial abusers. Good for them.

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    In spain, thanks to euro, prices rise up a lot. Round up is common in all type of shops. See this "common" joke comparison: 1 euro= 100 ptas (when the real valor of one euro is 166,386 ptas)

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    The tide has been changing this year. In the last 12 months grocery prices have gone up by as much as 12% in Belgium, according to a study by Sud Presse. This kind of inflation used to be unheard of in the last few decades.

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    How high is the inflation on average in the EU?

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    Quote Originally Posted by Miles77 View Post
    How high is the inflation on average in the EU?
    In 2007, the EU average was 1.9% of inflation, but in many countries it now exceeds 3%, mostly because of the sharp rise of petrol, gas, dairy products and cereals (including bread and pasta). However, this is a global trend, caused by China's increasing demand. It has little to do with the euro. The best proof is that inflation is similar in non-euro zone countries, and in countries like Japan.

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    Thank you for the reply and the explanation.

    I heard something like that. A friend of mine told me that the milk price for example rose because China wants to "grow" and therefore demanded more milk which sounds equally funny and possible.

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    Inflation has been rising dramatically over the past year. Belgium is now reporting over 5% of inflation from June 07 to June 08.

    Energy prices in general have increased by 10 to 15% in average in Europe, with heating oil soaring by some 40% - twice more than fuel for transport !

    The other two sharp rises are for food (cereals, dairy products and fruits, but not meat) and, surprisingly, also education (up 10% from 2007 to 2008).

    Education being mostly free in Europe, I suppose that they mean private institutions, such as language schools or international schools. So this is mostly of concern for foreign residents. It may just be a natural adjustment to international rates though. For example, the price of language schools in Belgium varies from under 1 euro/hour (if state-subsidised) to about 25 euro/hour depending on the school. Even the most expensive schools remain amazingly cheap compared to Japan, where 30 to 100 euro per hour is standard for a regular English class.

    Europe only experiences deflation for such products as electronics, IT equipment and telecommunications. Prices of cars, clothes, cultural and recreational activities are relatively stable.

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    Quote Originally Posted by Maciamo View Post
    In 2007, the EU average was 1.9% of inflation, but in many countries it now exceeds 3%, mostly because of the sharp rise of petrol, gas, dairy products and cereals (including bread and pasta). However, this is a global trend, caused by China's increasing demand. It has little to do with the euro. The best proof is that inflation is similar in non-euro zone countries, and in countries like Japan.
    There are reasons other than China's increasing demand...
    •First of all, in 2005 world cereal harvest fell by 3.6% and 6.9 % in 2006 due to poor weather conditions in chief producing countries.
    •Secondly, stock levels are very low; this is the lowermost in 3 decades.
    •Thirdly, prices of petroleum and food are notably correlated, with an evaluated correlation coefficient of plus 0.6. The increase in petroleum prices caused rising food prices as fertilizer prices almost tripled and transport costs doubled beyond the 2 years period.
    •Moreover, augmentative demand in biofuels sectors thrust prices uphill.
    •Also, economic growth in some grand developing countries is leading to changes in diet and thus increased demand for food crops. Like you said countries like China who is developing is consuming more. Like meat for example, when a country is getting wealthier people eat more meat than before and to produce more meat farmers need to feed their animals more cereals, this also contributes to augmentative cereal prices. Asides from China, countries like India and Brazil have also boosted their demands for meat.
    •Lastly, commercial policies established by some countries, like export bans, has a hand in upsurge prices in certain cases.
    Education being mostly free in Europe, I suppose that they mean private institutions, such as language schools or international schools. So this is mostly of concern for foreign residents. It may just be a natural adjustment to international rates though. For example, the price of language schools in Belgium varies from under 1 euro/hour (if state-subsidised) to about 25 euro/hour depending on the school. Even the most expensive schools remain amazingly cheap compared to Japan, where 30 to 100 euro per hour is standard for a regular English class.
    Yes for my French language University, the tution fees for foreigners, they have increased by 20 percent.
    Europe only experiences deflation for such products as electronics, IT equipment and telecommunications. Prices of cars, clothes, cultural and recreational activities are relatively stable.
    Well, despite of that, products such as electronics, IT equipments and telecommunications sold here are increasingly imported from China.

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    Quote Originally Posted by Minty View Post
    There are reasons other than China's increasing demand...
    •First of all, in 2005 world cereal harvest fell by 3.6% and 6.9 % in 2006 due to poor weather conditions in chief producing countries.
    Bad weather is a factor, but it has always been the case. Yet, food prices have not surged so much globally after WWII. Actually, food prices had a tendency to go down thanks to biotechnologies, genetic engineering and increased mechanisation. Mechanisation is still increasing in developing countries, so bad weather alone shouldn't have much effect on prices.

    •Thirdly, prices of petroleum and food are notably correlated, with an evaluated correlation coefficient of plus 0.6. The increase in petroleum prices caused rising food prices as fertilizer prices almost tripled and transport costs doubled beyond the 2 years period.
    True, but petroleum prices are high because of the huge increase in Chinese (and Indian) demand. That's the same argument.

    •Moreover, augmentative demand in biofuels sectors thrust prices uphill.
    That's only true for cereals. Biofuel crops do not replace cows or orchards.

    •Also, economic growth in some grand developing countries is leading to changes in diet and thus increased demand for food crops. Like you said countries like China who is developing is consuming more. Like meat for example, when a country is getting wealthier people eat more meat than before and to produce more meat farmers need to feed their animals more cereals, this also contributes to augmentative cereal prices. Asides from China, countries like India and Brazil have also boosted their demands for meat.
    True, but again it is mostly in China that changes are very fast. Anyhow, meat prices have not increased so much.

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