Comparison of price levels in Europe, 2005

Like in previous years, Iceland, Norway, Switzerland and Denmark heads the price comparison among European countries. The ranking of these four countries among themselves may change somewhat from one year to the next, often depending on exchange rate fluctuations. Whether one chooses to focus on the price level of the economy as a whole, or just on goods and services for household consumption, will also be of some importance.

The purpose of the European Purchasing Power Survey is to provide estimates for each participant country's relative price level. Today, the survey covers almost all European countries. The survey results are used subsequently, to adjust National Accounts aggregates like GDP per capita for differences in price levels among countries. This ensures, for instance, that countries with high (low) price levels will not come out with unrealistically high (low) levels of GDP in an international comparison.

Price and income levels often go hand in hand

If we focus on goods and services for household consumption, Norway in 2005 was 44 per cent above the average price level of the 25 EU member countries. Iceland came out on top, whereas Switzerland's and Denmark's price levels were slightly below Norway's. Further countries with high relative price levels were Ireland, Finland and Sweden, slightly more than 20 per cent above the EU average.

However, the four countries with the highest price levels also do very well in the ranking of price level adjusted GDP per capita. Luxembourg, often considered an economy with some rather unique features, comes out on top in this comparison, followed by Norway. Norway's price level adjusted GDP per capita was 65 per cent above the EU25 average. This corresponds to 33 per cent above Denmark's and 43 per cent above Sweden's level.

Further countries that stand out with a high GDP per capita (20 per cent or more above the EU average) are Ireland, Switzerland, Iceland, Denmark, the Netherlands and Austria. It is worth noting that the latter two, like Luxembourg, do not have particularly high price levels. It is thus not necessarily always the case that price and income levels go hand in hand.

New and prospective EU members at the bottom end

At the other end of the list, unsurprisingly, we find the new EU member states in Central and Eastern Europe, and the candidate countries of Bulgaria, Croatia, Macedonia (FYROM), Romania and Turkey. In the majority of these countries, the relative price level in 2005 was between 30 and 50 per cent below the EU average. However, these countries also have substantially lower income levels. The price level adjusted GDP per capita is lowest in the candidate countries of Macedonia (FYROM), Turkey, Bulgaria and Romania, whereas most of the new member states are between 39 and 53 per cent below the EU25 level. Only Cyprus, Slovenia, the Czech Republic and Malta reach a level of GDP per capita comparable to "old" EU countries like Portugal or Greece.

Preliminary figures

The figures presented here are preliminary estimates, and minor changes can be expected as new and more precise price and consumption data is included in the calculations. However, there is no reason to expect major changes in the overall picture. Updated results will be published in December.

Read Eurostat's press release here .

Tables:

• Table 1 Relative price levels for GDP and household final consumption. Volume indices for price level adjusted GDP per capita. First, preliminary results 2005. EU25=100