This paper seeks to provide a comprehensive overview of the long-term factors that explain divergent price levels across developed and emerging European countries. We provide stylised facts about the structural factors that influence market and non-market-based service, house and goods prices. The stylised facts show that there is much more behind differences in price levels among European countries than the much heralded Balassa-Samuelson effect and that prices other than those of market services are potential determinants of price levels and inflation rates in emerging Europe. Finally, we sketch out the possible mismatches between price level convergence and inflation rates.
