What exactly will the price increase be with Croatia’s accession to the euro zone?

September 17, 2021 – One of the concerns of many that accompanies Croatia’s accession to the eurozone is rising prices. How much will the prices increase, and will it be overall or only on certain items?

As Poslovni Dnevnik Written, the controversy over Croatia’s accession to the eurozone, outside of purely political opinions, boils down to a debate over whether prices will rise and, if so, by how much. Based on data obtained by Jutarnji list of the Croarian National Bank (CNB), it can be expected that after converting from kuna to euro, people will most likely have to pay slightly higher amounts for some items than they had the habit.

This has been demonstrated by statistics based on the experience of other euro area Member States which have gone through the process of introducing the euro at some point in the past, and in which it has been shown that Larger price increases should be expected in the catering sector, more specifically in restaurants and cafes. That said, the other service sectors will not be spared by a rise in prices either …

As Andrea Pufnik of the CNB explains in his article “Effects of the introduction of the euro on consumer price movements and the perception of inflation”, the experience of the Netherlands shows that prices of restaurants increased by 3.5% after the introduction of the euro. In Finland they increased by 2%, while in Austria and Greece slightly smaller increases in the hospitality segment were recorded, from 0.2 to 0.5%, as reported by Jutarnji list .

According to experts looking into this issue, the reason for these price increases has a lot to do with the so-called ‘menu cost model’, more specifically, most restaurants will be forced to print new ones. menus and that cost will spill over to consumers in the form of price increases.

The statistics also show how price increases could occur in the segment of cleaning, repair and rental of clothes, as evidenced, for example, by French, German and Estonian citizens. Hairdressing and beauty services in general may also become more expensive after Croatia’s accession to the euro area, and prices are also expected to increase in IT, audiovisual and photographic equipment services.

However, some products will also become more expensive due to price “rounding”, which may be more noticeable in baked goods and newspapers, according to the Pufnik study.

Namely, rounded prices are one of the most common reasons for price increases, which are more pronounced for products that initially had slightly lower prices, which include newspapers and baked goods.

According to CNB projections, newspapers and books are expected to become 2.06% more expensive in Croatia from 2023, financial services 1.9%, accommodation services 1.7%, footwear 1.6%, sports services 1.5% and catering services 1.2%.

Some euro area member states, such as Finland, also saw an increase in fruit prices after the introduction of the euro as their national currency, although it is possible that this also happened for climatological reasons. In Ireland the largest price increase was recorded in sports and recreation services, in Slovakia the prices of food and non-alcoholic drinks increased the most, while neighboring Slovenia saw higher prices in restaurants and cafes, then in shoes and home appliances, then in transport services.

In principle, various surveys provide different estimates of the effects of converting national currencies into euros, and Eurostat finds that growth averaged between 0.1 and 0.3% for the euro area in 2000 and 2001, while other surveys suggest price increases of 0.34 percent.

What is certain is that the effects vary from country to country. For example, the risk of price increases is reduced in countries where consumption growth is moderate as well as in Member States which introduce compulsory prices in both currencies in shops before the introduction of the euro, then price growth is generally moderate in markets where competition is more intense.

“We do not really expect price increases, but we do expect lower price increases in line with statistics recorded in other than new members of the European Union,” Governor Boris Vujcic said for try to calm people’s concerns.

To find out more about Croatia’s accession to the euro zone, see our dedicated policy section.

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