In the euro area countries, the euro cash changeover was accompanied by the development of a significant gap between actual inflation — as measured by the Harmonised Index of Consumer Prices (HICP) — and the inflation perceived by the general public; in Austria, this difference was temporarily up to 1.9 percentage points. The present study shows that the difference in question can in part be attributed to the fact that people s perception of inflation seems to be based mainly on the prices of goods they buy frequently, whereas official price indices also take into account goods that are purchased less often. According to recent hypotheses on perceived inflation (Brachinger, 2005a), the public furthermore perceives price increases more strongly than price reductions. Since the prices of frequently bought goods rose faster after the cash changeover than those of rarely purchased goods, and a higher (unweighted) share of goods became more expensive, people may have perceived the general price rise to have been more pronounced than it actually was. This perception seems to have been reinforced by the fact that consumers expected prices to rise as a result of the euro cash changeover and that they used outdated schilling reference prices when assessing prices in euro. Moreover, the initial lack of psychological prices may have made it more difficult for consumers to become used to prices in euro. Perceived inflation proved to be unexpectedly persistent: It was not until the beginning of 2005 that the gap between perceived inflation and actual inflation was more or less closed. Since then, the close link between actual and perceived inflation that was prevalent before the euro cash changeover seems to have gradually resurfaced. The fact that the above-mentioned gap opened up again in the middle of 2005 can probably be explained by the sharp increase in oil prices. JEL classification: E31, E50
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Order Information: Postal: Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria Email:
For technical questions regarding this item, or to correct its listing, contact: (Manfred Fluch).
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)