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Blog by Michael Clay

Poland May See Short-Term Price Growth After Euro Adoption - Finance Ministry's Report

Michael Clay - Sunday, October 31, 2010
Poland May See Short-Term Price Growth After Euro Adoption - Finance Ministry's Report

Poland may see its general price level rise by 0.5-1.7 percent in the short term after euro adoption due to the process of rounding up to "attractive prices," Finance Ministry's report on the balance of advantages and costs of euro adoption showed.

"The rise in the general level of prices in Poland resulting from rounding up to attractive prices could range from 0.5 percent to 1.7 percent," the document read. "That result is largely homogenous in a cross-section of various social groups and the rounding up effect is the strongest with respect to goods with low unit prices (price increase for goods priced up to PLN 1 may amount to 20 percent maximum)."

The document also mentions the possible effect of "euro illusion," that is a general perception of greater price increases than in reality due to the fact that goods with low unit prices are also the most frequent purchases.

"This poses a threat of increased wage demands and a temporary reduction in consumption," the report reads.

In spite of these short term effects, the report stated that the "estimated net balance of the integration [with euro zone] is visibly positive both in the short and in the long term."

Poland's government maintains its plans to adopt the euro in a fast and safe way, deputy Finance Minister and government point person for euro adoption Ludwik Kotecki told reporters earlier on Tuesday as the government adopted strategic framework for the national plan of euro adoption.

The official estimated short-term benefits "in the range of 0.9 percent of GDP (in the pessimistic scenario) to 1.9 percent of GDP in the optimistic scenario) or - using a different perspective - 0.3-0.9 percent of private consumption respectively."

Long-term net benefits are estimated at 2.5-2.75percent of GDP or 0.9-3.6 percent of private consumption," the framework showed.
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