The Effects of Austria's Accession to the EU on Consumer Prices
Austria's accession to the EU has intensified competitive pressure at all levels of production and distribution. Where price reductions are based on cost reductions considerable lags must be expected. One important exception are foods prices. At the beginning of 1995 Austria adopted the EU's Common Agricultural Policy. As a result, agricultural producer prices dropped sharply; by the end of 1995, more than half of these reductions have been passed on to consumer prices. In other segments, the integration effects on prices were more drawn out. Even though prices of many manufactured goods are higher in Austria than in West Germany, inflation in this area hardly slowed down during the first half of 1995 and exceeded the inflation rate in West Germany. It was only towards the end of the year that price increases fell below comparable figures for Germany. No clear signs of a deceleration have emerged yet for service prices. If the development of prices in West Germany is used as a standard against which to measure the effects of membership in the EU, the price effect can be estimated at almost ½ percentage point in the first half of 1995 and at ¾ percentage point in the second half of 1995. Much of this effect is due to lower food prices. The analysis of the movement of consumer prices according to the CPI can be complemented by the analysis of a survey of consumer prices conducted by the Chamber of Labor in the fall of 1994, before Austria's entry into the EU, and the spring of 1995 in Vienna and Berlin. In many market segments prices are higher in Vienna than in Berlin, but the averages mask a great deal of variation in price differentials. Prices in Vienna tended to adjust to prices in Berlin in a systematic way: the higher the initial price differential, the larger the adjustment. This price equalization feature was most pronounced for food prices. At the level of consumer prices, Austria seems to have the reputation of being a high-price country where market segmentation strategies can be successfully employed. The expectations of sharp price reductions in the wake of EU membership as well as a great number of price comparisons with other countries seem to have boosted the competitive spirit and may have made Austrian consumers more price-conscious. This change is likely to have contributed to the eventual slowdown in inflation. Well informed consumers are essential to the functioning of the market, but where the markets are distorted by oligopolistic structures competition policies are called for. Austria needs to strengthen competition by adopting legislation that has been standard in many EU countries.
Die Auswirkungen des EU-Beitritts auf die Verbraucherpreise; The Effects of Austria's Accession to the EU on Consumer Prices
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