The Wall Street Journal

August 23, 2002


Italians are Irked by Inflation
Induced by Switch to the Euro


ROME -- Inflation in Italy seems to be rising this month, heralding a possible increase across Europe. But consumers here say that doesn't begin to tell the story.

Eight months after Italy said farewell to the lira and took up use of the euro, shoppers are again blaming the common currency -- and businesses that may have taken advantage of the changeover -- for an increase in the price of everything from mozzarella to metro tickets to medicine.

Data released by 12 sample cities in Italy showed inflation is likely to rise to 2.3% during August, the first increase in five months.

However, Eurispes, an independent European economic-research body, estimates prices have risen more than 8%. Eurispes and eight Italian consumer groups have set out to prove it by creating an index to rival Istat, the official state statistical institute, which they say isn't calculating inflation data properly.

Some consumers across Europe took a dim view of the euro when it was introduced for public use in January, but a lot of the debate fizzled out. After much hoopla in Germany, for example, the government in July set up a Web site for outraged shoppers. Earlier this week, the government said the site had recorded just 245,000 hits out of a population of 82 million.

In Italy, however, the complaints have become so loud the government has said it may delay planned price increases for electricity, gas and water. Parliament is going to launch an investigation in September into whether business are taking advantage of the euro to raise prices, and whether inflation can be calculated better.

European officials have acknowledged there have been price increases related to the euro changeover. They say it has been the one hitch to an otherwise smooth substitution to the use of the euro, a huge logistical challenge involving 300 million people in 12 European countries.

It isn't fair to attribute all price increases to the euro. "We noted and took into account that the introduction of the euro inflated prices ... . But how do we distinguish that from the pricing policies adopted by companies?" Istat President Luigi Biggeri said in financial daily Il Sole 24 Ore.

Italy's inflation rate was 2.4% in January, 2.3% in February and 2.5% in March -- before sliding to 2.2% in July.

Consumers, though, are up in arms about the higher prices in their everyday lives. In Milan, for example, a bus or subway ticket that cost 1,500 lire (75 cents or 77 European cents) last year now costs €1 (97 cents) -- an increase of nearly 30%. A ticket to a movie, which cost about 13,000 lire ($6.49 or €6.70), is more than €7. The minimum bet that can be placed for "Totocalcio" -- a national lottery tied to soccer matches -- is €1, compared with 1,600 lire (80 cents or 83 European cents) last year. Consumer groups say the price of fruits and vegetables has risen by as much 10%.

Eurispes and other groups say Istat uses a basket of goods to calculate inflation that hasn't reflected the price increases that followed adoption of the euro. To reflect actual inflation, Eurispes said it is going to create its own index that will include prices, geographical variations, and consumers' ages and incomes.

Istat said it uses an inflation-calculation method agreed upon by European Union statistical body Eurostat, the International Monetary Fund and the Organization for Economic Cooperation and Development.

Mr. Biggeri said the problem with Istat's inflation-calculation method is that certain price increases weigh more on lower income families, because they feel a bigger impact from price increases in basic goods such as food and transportation. Price indexes aren't meant to measure cost of living, he said.

-- G. Thomas Sims contributed to this article.

Write to Alessandra Galloni at alessandra.galloni@wsj.com1

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Updated August 23, 2002

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