Has the euro changeover really caused extra inflation in Croatia?

Matteo Falagiarda, Christine Gartner, Ivan Mužić and Andreja Pufnik in this blogpost:

Croatian consumers have expressed concerns about price increases related to the euro changeover. Preliminary evidence presented in this ECB blog post shows that the changeover from kuna to euro has so far had relatively little impact on Croatian consumer prices and price perceptions.

The other countries adopted Euro in low inflation phase. Croatia adoption is during high inflation phase:

While the euro brings clear benefits for Croatia and its economy, some consumers have expressed concerns about possible additional price increases following the changeover from the national currency to the euro. These fears have a long history in the euro area. Media and parts of the public have often suspected that service providers such as restaurants in particular exploit the opportunity of a currency changeover to raise their prices exorbitantly. This debate about the price effects of changeovers to the euro has taken place in several countries since the entry into circulation of euro banknotes and coins in 2002. The German language even developed a word for this perceived effect: “Teuro” (from “teuer”, which means “expensive” in German). So what is the picture in Croatia two months after it adopted the euro? In a nutshell, there is a mild price effect in the services sector but overall little evidence of a broad-based extraordinary price effect coming on top of the current inflation trend.

But let’s take a step back: price rises linked to the introduction of the euro might stem from fixed costs associated with the changeover, rounding practices to attractive price levels, but also unfair pricing behaviour by firms as a result of a lack of price transparency and competition in certain sectors.^[3] Croatia is a rather special case compared to earlier changeovers: it is the first changeover taking place in a high-inflation environment in the euro area. This possibly makes it easier for firms to charge more than would be justified by increases in costs or surges in demand. Although Croatian authorities have implemented several measures aimed at avoiding unjustified price increases, including a relatively long period during which dual prices must be displayed, unusual price increases have been reported since the changeover, especially in the services sector.^[4] But all in all, the impact on consumer prices and price perceptions in Croatia coming on top of the general inflation trend seems to have been contained so far.

 

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