Euro changeover created higher prices than thought

The euro changeover led to higher price increases across the euro zone than EU authorities had originally thought, it was conceded yesterday.

A study produced by EU statistical agency Eurostat has found that the changeover added up to 0.29 per cent to prices across the euro zone last year.

Eurostat had previously put the increase no higher than 0.16 percentage points. Inflation in the euro zone as a whole averaged at 2.3 per cent in 2002.

The changeover to euro notes and coins contributed 0.12 per cent to 0.29 per cent to this, according to Eurostat's analysis.

Most of the rise came in the months directly before and after the changeover, with prices increasing by 0.09 per cent to 0.28 per cent between December 2001 and January 2002.

The most marked price increases came in the services sector, particularly in the so-called "small-shop" sector, Eurostat said.

The analysis found that services such as hairdressers, cleaners and restaurants could have added up to 0.09 per cent to inflation around the changeover period.

Within this, restaurants accounted for 0.06 per cent.

Eurostat has concluded that some price increases were temporary, while others, such as those for restaurants and hairdressers, could be more lasting.

On a "persistent" longer-term basis, the increase for small-shop services could have accounted for up to 0.12 per cent of the average inflation rate for 2002, the analysis finds.

The study identifies the food sector as another likely source of changeover-linked price increases but says inflation here could also have been influenced by factors such as BSE and foot-and-mouth disease.

In other areas, price effects were either small or insignificant, Eurostat said.

The analysis concludes that the changeover "cannot be seen as one of the main factors driving inflation in 2002".

Eurostat has cautioned however that its latest price growth estimates are subject to some uncertainty "given the passage of time and the length of the period analysed".

It was also confirmed by Eurostat yesterday that inflation across the 12-nation euro zone declined from 2.1 per cent in April to 1.9 per cent last month.

The fall, which was signalled in an estimate before the European Central Bank cut interest rates earlier this month, brings the average rate beneath the ECB's targeted ceiling of 2 per cent for the first time since the middle of last year.

The Republic has retained its place at the top of euro-zone inflation rankings, with a rate of 3.9 per cent.

The lowest annual inflation was recorded in Germany, where prices grew by just 0.6 per cent.