Price Developments in Austria after EU Accession and in Monetary Union

Austrians widely expected prices to fall on account of EU accession, participation in the Single Market and the resulting stepped-up competition. In hindsight, this assessment was partly correct. In the course of the decade from 1995 to 2004, the inflation rate dropped by half to 1.5% per annum from 2.7% (1987—1994). Initial price declines, e.g. in the food sector and later also in some service industries (such as the insurance industry), however, turned out to be mostly short-lived. By contrast, a number of technical industrial goods, such as computer equipment, saw sustained and in part huge price reductions. Liberalization entailed price effects in network industries, with prices in the telecommunications sector a case in point: they decreased over extended periods. Conversely, prices in many service industries have been continually uptrending. Overall inflation hardly changed following the street debut of euro banknotes and coins at the beginning of 2002; yet, prices of some items bought on a day-to-day basis have increased sharply since then. An analysis of the prices of individual items points to frequent price adjustments that coincided with the euro cash changeover in January 2002. Since upward and downward price adjustments roughly balanced each other out, no marked effect on the aggregate inflation rate was observed. To date, European integration has steadily caused price levels to converge, albeit at an altogether modest pace.