EN Official Journal of the European Union CE 65/95

(2004/C 65 E/108)

WRITTEN QUESTION E-1866/03

by Christopher Huhne (ELDR) to the Commission

(6 June 2003)

Subject: Price dispersion

Is the Commission able to give figures for price dispersion within the United States monetary union for comparison with the price dispersion in the EU as a whole (as detailed in single market reports), in the euro-area, and in the Member States that do not participate in the euro?

Answer given by Mr Solbes Mira on behalf of the Commission

(14 July 2003)

A Commission paper published in 2001 (European Economy, Supplement A, No 7, July 2001) compared price dispersion in the Union and the United States (US) per product group for the year 1998. Overall price dispersion in the US was found to be about three percentage points lower than in the Union in 1998, i.e. before the introduction of the euro. The paper concluded that there was scope for Union price dispersion to fall further towards the level of price dispersion in the US. According to the Commission's calculations overall price dispersion in the euro area was only marginally lower than in the Union in 1998.

Looking at sectors, the price levels for housing were more dispersed in the euro area than in the Union as a whole, however for all the other product groups price dispersion was lower in the euro area than in the Union.

The table below presents the data from this paper whilst adding data on price dispersion in the euro area. The European and American price dispersion data are based on different sources and are not fully comparable (please refer to the notes below the table). The Commission plans to update this analysis and to look more closely at the euro area data.

Price dispersion in the Union, euro area and in the United Sates in 1998 (1)

Overall Grocery Housing Utilities Trans-port Health-care Miscellaneous EU 14,6 10,5 31,2 24,4 17,9 35,5 9,1 Euro area 14,5 9,4 34,1 20,7 13,8 30,3 8,2 USA 11,8 5,6 26,5 19,3 9,3 14,3 5,6

USA data for price dispersion across 14 cities. EU data for price dispersion across the 15 Member States. Euro area data for the 12 euro area members.

USA data are collected excluding indirect taxes. EU data have been adjusted to exclude VAT and excise taxes.

USA data are for individual products. EU data use the nearest comparable product group from Eurostat's PPP data.

In addition to the Commission's work, two recent studies have compared price dispersion in the euro area and the US using a different data source (the Economist Intelligence Unit):

— J. H. Rogers, G. Hufbauer and E. Wada (2001) ‘Price level convergence and inflation in Europe’, working paper 01-1, Institute for International Economics, Washington DC;

— J. H. Rogers (2002) ‘Monetary union, price level convergence, and inflation: How close is Europe to the United States?’, Board of Governors of the Federal Reserve System, International Finance Discussion Papers No 740, October 2002.

The first of these studies found that price dispersion for tradable products was higher in the euro area (excluding Greece) than in the US in 1999. The second study, carried out one year later, found that by 2001 price dispersion for tradable products in the euro area (excluding Greece) was close to the level in the US. Both studies found that price dispersion for non-tradable products was lower in the euro area (excluding Greece) than in the US. The data for both studies pre-date the introduction of euro notes and coins.

(1) Price dispersion calculated as the coefficient of variation of price levels.