Evidence of small-scale profiteering on changing to the euro

There was evidence of "euro profiteering" during the changeover to the new currency but not on a large scale, the Forfás report said.

Concluding its investigation of price increases during the changeover, it said it appeared that profiteering was "confined to the non-traded sectors, and particularly those where competition is not particularly strong either as a result of regulation/restricted market entry or an inadequate supply".

The report did not identify any particular sectors where profiteering may have taken place.

Instead, it referred to areas where "unusual" price increases were witnessed, and said "the extent to which unusual pricing behaviour during the changeover constitutes profiteering will only become apparent with the passage of time as all of the euro-induced pricing behaviours wash out of the system".

It noted it was not possible to determine at what point in the supply chain the unusual pricing behaviour started, "i.e. it may be the case that those enterprises that deal directly with consumers are themselves victims of some level of 'euro profiteering' higher up in the supply chain".

Addressing the broader question of whether "rip-off" complaints during the introduction of the euro were justified, the report noted that perceptions of inflation did not always match reality.

"It generally takes time for consumers to adjust to the fact that a unit of the new currency is simply not as valuable as a unit of the old," the report said.

"Euro illusion, as this has been dubbed, is reflected in the fact that a large number of people have yet to, or have only recently, adjusted their average ATM withdrawal amount to reflect the diminished value of a unit of the national currency." In addition, it said, "consumer prices in Ireland have been edging up for some time now, and the introduction of the euro most likely served to cast this fact into a much clearer light for many consumers."

Despite this, the report noted that complaints were "not without justification" as they were directed at areas broadly consistent with the profile of services and goods identified as having seen unusual price changes.

However, "if the question 'were the complaints justified' pertains to whether there was euro profiteering on a grand scale in Ireland, the answer is no. There is preliminary evidence of euro profiteering, but this is not economy-wide."

The report examined other possible reasons for unusual price behaviour during the changeover, including general increases in insurance premia, and the cost of euro conversion.

The report played down the significance of the former, noting "survey findings show that the costs of insurance to Irish business have been rising very quickly for the past two years, i.e. this is not a changeover-specific development".

Moreover, "there is no particular reason why the impact of such premium hikes would weigh most heavily on one particular sector of the economy, i.e. services."

The report also played down the significance of the costs of euro conversion, saying the fact that these were experienced before, during and after changeover should have limited their inflationary effect.

A third "and seemingly more plausible explanation" pertained to a "convenience factor", namely the practice of bringing forward price increases to avoid duplicating costs entailed in changing prices.

"The extent to which the rounding up of prices or bringing forward full-year price increases to January of this year constitutes 'euro-profiteering' depends wholly on the future pricing behaviour of the enterprise, i.e. the extent to which the consumer is compensated through the deferral of future price increases," the report said.