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Perceived and Measured Inflation after the Launch of the Euro: Explaining the Gap in Italy

Author

Listed:
  • Paolo Del Giovane

    () (Bank of Italy)

  • Roberto Sabbatini

    () (Bank of Italy)

Abstract

Following the euro cash changeover, residents in the area perceived a much sharper increase in prices than the moderate rise recorded in official statistics. The paper shows that in Italy this gap can be explained for the most part by the stronger influence that large, upward, and frequently observed price movements exert on consumers’ perceptions, combined with the actual behaviour of prices in the wake of the changeover, when many prices did in fact change, with larger increases for the more frequently purchased products and exceptional rises in certain items. The interplay between public perceptions and media coverage also had a significant role. Finally, the perceived loss of purchasing power, especially for the least-well-off households, can be traced to economic phenomena that do not bear directly on official inflation but which households find it hard to consider separately, such as increases in house prices and the evolution of income.

Suggested Citation

  • Paolo Del Giovane & Roberto Sabbatini, 2006. "Perceived and Measured Inflation after the Launch of the Euro: Explaining the Gap in Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 155-192, November.
  • Handle: RePEc:gde:journl:gde_v65_n2_p155-192
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    References listed on IDEAS

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    1. Silvia Fabiani & Angela Gattulli & Roberto Sabbatini & Giovanni Veronese, 2006. "Consumer Price Setting in Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(1), pages 31-74, May.
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    Citations

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    Cited by:

    1. Tomás Slacík, 2008. "(How) Will the Euro Affect Inflation in the Czech Republic? A contribution to the current debate," FIW Working Paper series 018, FIW.
    2. Columba, Francesco, 2008. "The speed of euro adoption," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 249-259, March.
    3. Lunn, Pete & Duffy, David, 2010. "The Euro Through the Looking-Glass: Perceived Inflation Following the 2002 Currency Changeover," Papers WP338, Economic and Social Research Institute (ESRI).
    4. Svatopluk Kapounek & Lubor Lacina, 2011. "Inflation Perceptions and Anticipations in the Old Eurozone Member States," Prague Economic Papers, University of Economics, Prague, vol. 2011(2), pages 120-139.
    5. Luc Aucremanne & Marianne Collin & Thomas Stragier, 2007. "Assessing the Gap between Observed and Perceived Inflation in the Euro Area : Is the Credibility of the HICP at Stake ?," Working Paper Research 112, National Bank of Belgium.
    6. Michael J. Lamla & Sarah Lein, 2010. "The Euro Cash Changeover, Inflation Perceptions and the Media," KOF Working papers 10-254, KOF Swiss Economic Institute, ETH Zurich.

    More about this item

    Keywords

    euro; inflation; perceptions;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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