Rising prices give credence to the feared ‘1 May’ effect

Date: 17/06/04

By Dace Akule

NEW member states' citizens' concerns, that EU membership would push up consumer prices for goods and services, appear to have been justified according to the latest data.

In Estonia, the transport sector saw the biggest price increase - up 8.2% between April and May, while prices for food andnon-alcoholic beverages have increased by 3.3%. However, communications, clothing and footwear have become slightly cheaper. Overall, prices rose by 2.1% between April and May, mainly due to rising oil and sugar prices.

In Latvia, annual inflation has reached 6.2%, its highest level since 1998. One of the reasons cited for the increase is theLatvians' panic-buying of sugar, which theyexpected to become more expensive after1 May. Their concerns became a self-fulfilling prophecy, as the hoarding served to push sugar costs even higher. The price of petrol increased by 11.9% due to the rising oil prices in the world markets as well as the excise duty increase of 8.7% from Januaryto May.

In Lithuania prices rose 1.6% for goods and 1.3% for services between April and May (the highest monthly price rise in the past four years). Food, non-alcoholic drinks, transport and health care as well as heating bills rose by 9%.

Polish drivers were the hardest hit by the petrol price increase - up 5.6%. Heating (up 1.6%) and electricity (0.3% increase) also became more expensive, and, overall, consumer prices increased by 1% in a month.

Hungarians experienced an inflation of 7.6%. Although consumer prices have gone up only 0.9% from April to May, books and medicine prices have jumped 5% due to the increased VAT introduced in January.

But Erdos Szabolcs, from Hungary's ECOSTAT institute, told European Voice that “the so-called EU effect was less important than the increasing wages, state budget deficit and the oil prices“.

In the Czech Republic a '1 May effect' was felt due to higher VAT tariffs on catering and household services. Tobacco products have also become more expensive by 4.3% due to the increase in excise duty introduced in January. However, electricity, gas, housing and telecommunications have become cheaper thanks to a decrease in VAT, from 22-19%.

In Slovenia prices for goods have grown faster than prices for services. Riding on a bus, buying clothes and shoes, as well as going to art galleries has become more expensive. Annual inflation has reached 3.8%, compared with May 2003, with rising oil prices contributing the most.

Data from Slovakia show that there, too, oil prices have forced the bills for transport up by 1.4%. Hotel accommodation, as well as alcoholic drinks, tobacco products and sweets have become more expensive. In comparison to May 2003, consumer prices increased by 8.3%.

But Katinka Barysch, chief economist at the Centre for European Reform, saysthese price rises are not attributableto EU membership: “Governments need to make it clear that it's not the EU that makes things more expensive,” she said.

Fears of citizens in 'new' Member States that EU membership would lead to an increase in prices of goods and services appear to have been justified. Data from Estonia, Latvia, Lithuania, Poland and Hungary, for example, show increases in prices for goods and services. However, the chief economist at the Centre for European Reform says price rises should not be attributed to EU membership.