The Impact of the European Economic and Monetary Union on Inflation in Austria

The establishment of the European Economic and Monetary Union is a decisive step of the European Union toward further integration. The introduction of the common currency is bound to enhance the competition effects engendered by the Single Market. The introduction of the common currency is an enormous investment in the improvement of Europe's competitive position. As such, it also entails large costs in the initial phases of the currency union. However, several sectors will experience cost reductions even in the short term. This point relates to the costs of currency management. Under the assumption of complete pass-through of cost increases and reductions, the effects on the consumer price index are as follows: the introduction of the euro brings about a slight acceleration in inflation over the next two years by 0.1 percentage point per year; over the next few years, however, the cost reduction effects are likely to prevail and inflation is expected to slow down by ¼ percentage point per year.