Why is life here so expensive, moan Belgians

BRUSSELS Wed Mar 7, 2012 2:26pm IST

General elevated view of Antwerp, Belgium. REUTERS/Stringer/Files

General elevated view of Antwerp, Belgium.

Credit: Reuters/Stringer/Files

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BRUSSELS (Reuters) - Belgians have been seeking to solve a mystery - why do they pay more than their neighbours in shops and for utilities when the European Union is meant to be a single market delivering homogeneous pricing?

The central bank and international economic institutes have warned for years about prices in Belgium, albeit more the price of labour than of goods, although the two are linked.

Now, after oil and commodity shocks in the first halves of 2008 and 2011 and widening austerity measures, Belgians have woken up to the problem of high prices.

"Yes, prices are an issue, but we live here. What can we do?" said David, a student shopping in Brussels.

A government study released three weeks ago showed identical groceries cost about 10 percent more in Belgian supermarkets than in the Netherlands and in Germany and 7.5 percent more than in France.

Belgians pay about 45 euros per month for home Internet and a fixed telecom line, some 50 percent more than their neighbours.

And electricity also costs about 50 percent more than in France - even though the same two French utilities supply the bulk of consumers in both markets.

"Belgian energy users bled dry," was one newspaper headline.

Belgians typically also pay more for durable and consumer goods, from televisions to toys, chisels to children's shoes.

Belgian inflation tends to outpace that of the euro zone, partly because it is more vulnerable to oil price shocks.

Belgians consume more energy than euro zone peers by driving to work more and by heating often high-ceilinged homes. Low taxation on heating oil also means its price is more volatile.

In July 2008, Belgian inflation hit 5.9 percent, the second highest level in the euro single currency area. In July 2011, at the peak of another oil and commodity spike, it was again second highest, lagging only new euro zone entrant Estonia.

"Since 2008, we've had prices higher than the euro zone average. It seems we have a problem. With a very strong energy price shock that problem has become apparent," said ING economist Philippe Ledent.

Belgium has typically had a current account surplus, but imported more than it exported since 2008.

The country seems stuck in a vicious circle: Belgians want their wages to keep pace with prices, which undermines Belgium's competitive position and in turn pushes prices ever higher.

The European Commission warned Belgium last month that deteriorating cost competitiveness was a cause for concern.

A chief culprit is Belgium's system of linking pay to inflation, which has come under fire from the European Commission, the executive arm of the 27-member bloc.

Wages in Belgium have risen 2 percent on 14 occasions since the euro's launch in 1999 - an overall rise of 32 percent.

But wage costs are not the only piece in the price puzzle.

SINGLE MARKET FOR PRODUCERS, NOT CONSUMERS

The supermarket study found factors such as wages and sales tax, along with rules against selling at a loss, explained up to 6 percent of the difference between Belgian prices and those next door in the Netherlands - though not the full 10 percent.

Economy Minister Johan Vande Lanotte said the report showed the European Union worked as a single market for producers, but not for consumers, with suppliers restricting where retailers could sell their products. Prices in small countries, such as Belgium, were artificially high, he concluded.

Limited competition in some sectors may also be to blame.

"It is easier to have second-round effects in Belgium and increases of selling prices," said ING's Ledent.

But experts say Belgians are often not bargain-hunters. They typically view food with more passion than their Dutch and German counterparts and will pay more for fresh produce.

"Food is a luxury here. There's far less price elasticity," said Dirk Vanderveken, a director at marketing research company GfK. "That's something the discounters found too, that Belgians won't go for the cheapest."

The price differences are harder to explain for durable goods, such as consumer electronics, where anyone in Belgium could save themselves 20 to 40 percent by shopping online.

"Belgian consumers are more like Italians. Independent shops are more prevalent and they don't go in for price cutting," said Filip Van Dyck, a retail and technology specialist at GfK.

According to Euromonitor International, per capita spending on e-shopping was almost 20 percent lower than in Germany and the Netherlands last year and 40 percent behind France.

But Belgians are starting to become more cost conscious.

In a first strike, the government decided last week to freeze electricity and gas prices from April until the end of the year, which it hopes could also dampen inflation.

Belgians are also gradually switching on to the Internet, where their online spending has risen 160 percent in the past five years, a faster pace than in Germany and the Netherlands.

"Prices will no doubt become more harmonised. The winner will be the consumer," said GfK's Van Dijk.

(Editing by Ruth Pitchford)

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