Introduction

When euro notes and coins were originally introduced in January 2002, consumers in the member states of the Eurozone experienced a sharp spike in perceived inflation, which translated into a permanent perception that the switch to the new currency was associated with a one-time inflation shock. As evidence of this, the synthetic indicator of perceived inflation over the previous twelve months compiled by the European Commission from consumer surveys showed a jump from 27 in December 2001 to 60 in September 2002 and remained above 50 for most of 2002. The most succinct summary of this view was coined in Germany, where the euro was promptly dubbed ‘teuro’ (from teuer, meaning ‘expensive’ in German).

For consumer prices as a whole, the perception was largely disproved by the actual data on the development of consumer prices during the relevant period. Prices in January 2002 rose by 0.09 per cent in the Eurozone according to the harmonised index of consumer prices (HICP) and the annual inflation rate during 2002 was also similar to 2001 and 2003, oscillating between 2 per cent and 3 per cent (although there was an unusual jump at the beginning of 2002, attributed mainly to the weather). Therefore, the explanations of discrepancies between the perceived and the actual inflation tended to focus on either purely psychological interpretations of how individuals could experience higher inflation at the time of a change in currencies without any basis in reality, or interpretations combining higher-than-normal changes in specific prices, which are likely to form anchors of consumer experiences, with psychologically based misconceptions.