Euro or “Teuro”?: The Euro-induced Perceived Inflation in Germany

After the introduction of the euro notes and coins in January 2002, throughout the Economic and Monetary Union member countries there was a widespread feeling that the euro had brought about a significant hike in consumer prices. A substantial discrepancy was evident between inflation as measured by the official consumer price indices (CPI) and the one perceived by the general public. In this paper the German case is treated. First, a short overview is given on the public discussions and the many studies published by the German Federal Statistical Office. Then a newly developed theory of inflation perception is outlined and a corresponding index of perceived inflation (IPI) is developed. This index has been calculated for Germany. In the main part of the paper, the results are presented. The IPI time series for Germany from 1996 through 2006 clearly show a special inflation around the introduction of the Euro notes and coins. During that period, the average perceived inflation was approximately 4 times higher than the official inflation rate.