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Abstract

The main purpose of this research is the comparative analysis of overall HCPI and food inflation rates’ regional convergence between the European Monetary Union and New Member States (NMS) using both aggregated and disaggregated data from January 2000 until December 2013. Although there exist now a wealth of empirical papers with respect to inflation convergence, NMS were somewhat neglected, more, research highlighted that many results suffer from inappropriate methodology and data aggregation problems. There are a number of theoretical and policy implications with respect to divergence of inflation rates in a monetary union. For NMS, (overall and food) inflation rate convergence is important on one hand because of the desire to meet Maastricht euro convergence criteria and on the other, from consumers’ welfare point of view. The food basket expenditure as part of disposable income is still significantly higher for NMS consumers that those in ‘old’ EU member states. One of the main novelties of this paper is that it derives conclusions by employing a dataset that covers a politically, socially and none-the-less economically extremely interesting period: from before the EU accession, through the global financial crisis, price spike the adoption of Euro in some NMS, and finally the adherence of the newest NMS, Croatia. There is some evidence that after an initial, pre- and post EU accession convergence process, the financial crises together with the agricultural and food commodity price surge (price spike) did not halt, but diversified the convergence process of NMS.

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