From Iceland to North Macedonia, the prices of consumer goods and services vary significantly across Europe. New Eurostat data shows where everyday products and services cost the most – and why prices alone don’t tell the whole story.
The same shopping basket can cost almost four times as much, depending on which European country you are in. But which countries are the most expensive and how do you compare them fairly?
The answer is provided by Eurostat’s price level indices, which compare the costs of consumer goods and services in each country with the European Union average.
Simply put, if the same basket of products and services costs 100 euros on average in the EU, how much would it cost in each individual country?
In order to make the comparison as representative as possible, Eurostat bases its indices on annual average national prices for more than 2,000 products and services.
There are two ways of measuring prices. One includes only what households pay directly, while the other includes publicly funded services such as health and education, reports Euronews.
This article uses a broader measure known as Actual Individual Consumption (AIC), which Eurostat considers more suitable for international comparisons. The graph also shows the measure of household consumption (HFCE).
A value of 100 represents the EU average. A score above 100 means the country is more expensive than the EU average, while a value below 100 means it is cheaper.
This data compares prices only. They do not take into account income levels, which means that a more expensive country is not necessarily less affordable for its residents.
Which countries are the most expensive and which are the cheapest?
Within the EU, the difference is very pronounced. Luxembourg is the most expensive country, while Romania has the lowest prices. Consumer prices in Luxembourg are 2.5 times higher than in Romania.
When candidate countries for EU membership and EFTA members are included, Iceland becomes the most expensive country and North Macedonia the cheapest, increasing the difference to 3.7 times.
In general, Western and Northern Europe have higher prices, while Central and Eastern Europe are significantly cheaper.
In Iceland, prices are 83.7% higher than the EU average, and in Switzerland 81% higher.
Professor Robert Inklaar from the University of Groningen told Euronews Business:
– These data should always be viewed together with earnings. It is not crucial for the standard of living whether the prices are high, but how much can be bought with the local salary – purchasing power is important, not the price itself.
As an example, he cites Switzerland, which looks very expensive, but wages there are high enough that purchasing power remains among the highest in Europe. The same prices with much lower wages would be much harder to bear.
Among the most expensive countries in Europe are:
Denmark (+40.2%)
Ireland (+39.6%)
Norway (+38.4%)
Following are:
Sweden (+28.4%)
Finland (+26.1%)
In the Netherlands, the same basket that costs 100 euros on average in the EU costs 120.4 euros, in Austria 119 euros, and in Belgium 118.1 euros.
Among the four largest EU economies, Germany is the most expensive, with prices 9.1% above the EU average, while Spain is 8.9% below the average. This means that the same basket in Germany would cost about 18 euros more than in Spain.
France (106.4) is slightly above the EU average, while Italy (98) is slightly below.
The cheapest countries
At the other end of the list are the countries of Southeast Europe.
In North Macedonia, a basket that costs 100 euros in the EU costs only 49.7 euros, or less than half.
Following are:
Turkey – 52.2 euros
Bosnia and Herzegovina – 55.7 euros
Romania – 58.9 euros
Bulgaria – 60 euros
All these countries are at least 40% cheaper than the EU average.
Among the more favorable countries are:
Montenegro – 61
Serbia – 62.5
Albania – 65.7
Poland – 71.1
Hungary – 71.6
All have prices at least 25% lower than the EU average.
Below the EU average are also:
Croatia – 76.3
Slovakia – 81.4
Lithuania – 81.4
Czech Republic – 82
Greece – 84
Portugal – 85.3
What causes price differences?
Professor Robert Inklaar explains:
– The biggest reason why prices differ across Europe is that wages also differ, and wages are linked to productivity.
Where workers are more productive, they earn more. Higher wages increase the cost of everything produced and consumed locally – from restaurant meals and hairdressing services to dental appointments, rent and childcare. Since these services cannot be imported, their prices directly follow local labor costs.
Inklaar emphasizes that this does not only apply to services. Even goods that can be traded internationally – such as food or clothing – involve local costs such as labor in stores, transportation and lease of office space. Because of this, local wages also affect the prices of goods, although somewhat less than in the case of services.
However, wages are not the only factor.
Prices are also affected by distance, distribution costs, regulations and national borders, which is why the same product does not cost the same in all countries. Differences in VAT rates and other consumption taxes further increase price differences.
As Inklaar says:
– A more complete comparison should relate the price level to earnings or disposable income, ideally expressed through purchasing power, taking into account differences in exchange rates and taxes.
Professor Rainer Maurer, a retired professor at the University of Pforzheim, points out that there is a clear positive correlation between price levels in eurozone countries and their GDP per capita.
In other words, the most expensive European countries are also mostly the richest. High prices are often accompanied by high incomes, which is why economists emphasize that the price level must always be viewed together with the purchasing power of the population.
