Introduction of euro weakened consumers' price awareness

Researchers claim perception of prices may remain permanently impaired

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With the introduction of the euro, consumers' ability to perceive the cost of things has become weaker. Furthermore, people's estimates of prices have become more inaccurate.
      These are the findings of a new National Consumer Research Centre study, Three years of the euro - Have consumers learned prices?
      As expected, consumer perceptions of prices were weakened by the transition from markka to euro in 2002. What the researchers find surprising is that after three years consumers' price awareness still remains impaired.
     
"Before the introduction of the euro, had somebody suggested that consumers will not get accustomed to prices in euros in three years, no-one would have believed him", notes Ville Aalto-Setälä, one of the compilers of the new study.
      The study began at the end of the markka era and was stretched three years into the euro's reign. One thousand consumers were interviewed annually and they were asked to estimate the price of five products, such as a kilo of granulated sugar or a litre of skimmed milk.
      Whereas in 2001 over 93 percent of the interviewed dared to give some kind of an estimate of the prices, in the euro time this figure has fallen permanently below 90%.
      During the research period, the difference between the actual market prices and the consumers' estimates grew from less than 20 percent to 25 percent.
     
Another interesting point is that the nominal value of the currency seems to bear significance in relation to consumer price awareness. As the nominal value of the markka is smaller that that of the euro, it seems to make it easier for consumers to estimate prices - low prices in particular - in the old markka form.
      In the markka era, prices were estimated in markka intervals: in other words, a product would cost ten marks or eleven marks, and so on. Now, prices are perceived either at euro or fifty-cent intervals. This has for its part weakened consumers' ability to perceive the precise cost of things, given that a euro is worth roughly six old markka.
      Even though the euro has been in use for over three years, a quarter of the consumers still convert prices - at least to some extent - to markka denominations while doing their everyday shopping.
      People think in terms of the markka prices even more when considering larger purchases, such as buying a new home.
      Still, compared with the other euro nations, the Finns have adopted the new currency rather better than average. According to Aalto-Setälä, people in countries where the attitude towards the new currency was positive to begin with have found it easier to embrace it.
     
In public debate the introduction of the euro has often been said to have increased prices. When a cup of coffee used to cost ten markka, it now costs two euros (almost 12 markka).
      According to Aalto-Setälä, the occasional rise in prices of individual products has caused a delusion of general price increase. Inflation has not materially speeded up during the euro era.
      The compilers of the study think it is likely that people's perception of prices has permanently weakened. In time, however, this may level off.
      "Today's schoolchildren could not care less about the old markka. The problems brought about by the changeover to the euro apply to the current generation. Also, the inevitable inflation will in time correct the euro's nominal value in the right direction - making it smaller", Aalto-Setälä concludes.


Links:
  National Consumer Research Centre Publications

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