The protesters seem to have plenty to be upset about. Fresh cucumbers and tomatoes now cost 10% more than they did a year ago, and a shampoo and set in France is up by an average 12%, consumer groups say. In Italy, a simple plate of pasta at many trattorias will set you back almost twice as much as it did last fall. Overall, consumer watchdogs and nongovernmental agencies estimate that annual inflation in the 12-country euro zone topped 5% in July. "Restaurant owners and retailers have used the new currency as an excuse for forcing through huge price increases," gripes Anneliese Gutmann, a retired civil servant encountered in Frankfurt's Norwestzentrum shopping center. "It's an absolute scandal."
It certainly would be--if it were true. But according to Eurostat, the European Union's Luxembourg-based statistical agency, inflation across the euro zone remains subdued--at just 1.9% for the 12 months through July. The official stats are backed by most academic number-crunchers and economists. "There is no reason to doubt the statistics," says Guido Tabellini, professor of economics at Bocconi University in Milan. That's also the view of the monetary policymakers at the European Central Bank, whose chief mandate is inflation control. "Overall, there is no evidence that the euro cash changeover has had a significant effect on the average price level," says ECB President Wim Duisenberg.
To be sure, the prices of many goods and services have indeed shot up. The summer's bad weather washed out cropland and boosted fresh-produce prices. Tax increases hiked the prices of tobacco and some luxury goods. Public transit fares were rounded up, sometimes by a third. And some unscrupulous business owners did push through big increases, sometimes simply by switching currency symbols without changing the numbers behind them. German Finance Minister Hans Eichel was himself victimized: In May he popped out for a snack and was charged 3.50 euros for a Bratwurst und Br?tchen that used to cost him 3.50 Deutschemarks--little more than half as much. He was livid and called on Germans to boycott underhanded merchants. "I don't go back to places where I feel ripped off," he said.
Fair enough. But economists point out that for every overpriced bratwurst there is an electronics item or appliance whose price has fallen. And energy prices have stayed fairly flat because of the euro's rise against the dollar. Even in Italy, where anger at alleged "euro-gouging" is fiercest, the official annualized inflation rate was a tolerable 2.4% as of July. And switching to the euro was responsible for no more than two-tenths of a percentage point of that, says Eurostat. While consumer activists argue that the basket of goods used by government agencies to calculate inflation isn't representative of what most Europeans buy, economists say the yawning gap between the public perception of inflation and its real level is psychological. "Consumers notice price increases for things they pay for in cash or buy regularly, like their groceries or going to a bar," points out Jean-Pierre Durante, an economist at Pictet & Cie., a private bank in Geneva. "But they don't tend to notice price decreases on big-ticket items such as computers or cars." On top of that, surveys show that many people still have no idea of the cost in euros of many basic items-six eggs, a loaf of bread, or a bottle of beer, for example.
Even if prices aren't really soaring, officials are being forced to pay attention to the rising tide of discontent--if only because the furor could do some serious political damage. In Italy, where union members think prices are rising faster than they are, union leaders are demanding sharp pay raises and are threatening a nationwide strike. Still more worrying, consumers might respond by spending less. And if the euro becomes associated in the popular consciousness with higher inflation, that won't help its cause in Britain, Denmark, and Sweden, the three EU nations that haven't joined the euro zone.
But there is little that politicians can do to reassure voters. On Aug. 29, Italian Finance Minister Giulio Tremonti proposed replacing the one-euro coin with a euro note in a bid "to increase respect for the currency and stabilize prices." A euro bill, holding roughly the same value as a U.S. dollar bill, couldn't be dismissed as a bit of loose change, he reasons. On Aug. 30, the Italian government slapped a three-month freeze on some utility and transport prices, a move condemned by most economists, who say prices should be governed by market forces, not by government fiat.
One thing consumers can count on: The ECB isn't likely to raise interest rates to tame inflation that it doesn't think is there. Ironically, the popular concern about inflation could induce the ECB to cut, rather than raise, rates. With euro-zone consumption down 0.9% from the year-ago level, the last thing the Continent's struggling economy needs is even weaker demand brought on by higher rates. Indeed, instead of a national shopping strike, what Europe could really use is a big shopping spree. By David Fairlamb in Frankfurt, with Gail Edmondson in Rome