Price Level Differences in the Euro Area: The Case of Greece

Abstract

Recent inflationary pressures have significantly affected household disposable incomes across Europe, with Greece being particularly impacted due to its low purchasing power. This study investigates the persistence and evolution of price level differences for fast-moving consumer goods in Greece compared to other euro area countries. It utilises the results of Dixon et al. (2023), who analysed price level differences across 41 product categories in ten euro area countries and found that the main factors contributing to price level differences include producer market competition, retail market structure, local costs and consumer habits. Building on these findings, we construct counterfactual prices and show that aligning Greece's market structures and consumer behaviour patterns with the euro area average could significantly reduce prices (by 17 percentage points on average for the products with the highest share in total sales). The study also finds that although Greece has become cheaper in relative terms in recent years, it is still, on average, about 10% more expensive compared to euro area countries' average. These results imply that there is scope for policy action, in particular, in areas that increase competition among producers, improve the structure of the retail market and enhance consumer economic literacy.

Keywords: market structure, consumer behaviour, international relative prices

JEL Classification: D4, E31, F41