"Hidden price rises" were the biggest worry of Germany's sceptic public when the euro was launched as a cash currency.

And on the streets of Munich, most people believe they are worse off.

It's easy to sneak in hefty price increases

Markus Saller Bavarian Consumer Association

"Food prices have gone up at least 10%," complains cab driver Thomas Schlack.

A cup of cappuccino used to cost him 2.30 Deutschmarks, he says, but since the euro changeover he has to pay the equivalent of DM 2.80. A glass of wheat beer, a local speciality, was priced at DM5.80. On Wednesday evening, he paid 6.67.

Jan Mikulcik, a student, has just come from the bank, where he queued 30 minutes to swap his last Deutschmarks. He says food prices rose rapidly in the run-up to the euro launch, especially in November and December.

But Germany's largest food retailers claim they are not making a fast euro. Instead, they have launched a ferocious price war.

Aldi makes the first move

Discount chain Aldi fired the first shot, promising to "round down" all converted euro prices to the nearest "attractive price", for example from 4.08 euros down to 3.99.

Other adjustments are smaller. One litre of milk used to cost 1.19 Deutschmarks (DM) or 61 cents, but will be priced at 59 cents.

Euro-spenders could enjoy some temporary price cuts

The retail giant claims that on average prices have fallen by 2-3%.

One day after full page adverts heralded Aldi's move, competitors are joining the battle.

Rival discounters Lidl and Norma have already announced their own price cuts - although only for several hundred key products. At Norma, for example, a large frozen pizza used to cost 2.55 euros, but has been marked down to 2.49.

Smaller competitors like Plus are either following suit, or - like Rewe - weighing their options.

Consumers may be breathing a sigh of relief, but the smaller players in Germany's retail sector will be smarting, as the industry is notorious for its razor-thin profit margins.

Clothes boost

And the price war is spreading beyond the discounters. Kaufland, Germany's second-largest operator of supermarkets shocked the industry - and rivals like Metro and Wal-Mart - by announcing price cuts for 1,300 products.

A bag of Moevenpick coffee, a luxury brand, will now cost 3.99 euros - well below the conversion price of 4.60 euros (DM8.99).

Any company raising prices now would do huge damage to its image

Markus Saller Bavarian Consumer Association

Even clothes shoppers received a euro boost. Until Saturday C&A will offer its customers a 20% discount - but only if they avoid cash altogether and pay by debit card.

Competitors like Olaf Kather, managing director at Munich's Hertie department store, dismiss the move as a "cute publicity stunt". Deep discounts, he says, might be needed by those that are not ready to cope with two currencies -euro and Deutschmark - at the same time.

Beer price shock

There are a few obvious price increases as well. A number of large breweries have used the euro launch to push up prices by about 10%, ending a long price war that focused on the "attractive price" target of DM19.99.

A crate of beer bottles will now cost 11 euro, well above 20 Deutschmarks.

But even here the price squeeze has begun, with Kaufland now selling one brand of (alcohol-free) beer at 9.99 euros.

In other sectors of the retail industry, firms say their overall prices will level out, with some being rounded up, and others rounded down.

Trend reversal

However, consumer watchdogs confirm the suspicions of customers that all the cost cutting may not be as generous as it seems.

Across Germany, consumer associations have noted steadily rising prices in the run-up to the euro cash launch. Markus Saller, euro expert at the Bavarian consumer association, says there was a flood of complaints about prices during July to November.

The necessary maths make it easier to slip in price rises

Since 1 January, he says, there has not been a single complaint: "Any company raising prices now would do huge damage to its image."

However, the key offenders of pre-euro times were not food stores, he says, but shops selling goods in the "medium price range" of 20 to 120 Deutschmarks.

"Most people don't know by heart how much these products cost - clothes or perfumes for example. So it was easy to sneak in hefty price increases," argues Mr Saller.

Retailers have blamed energy costs, inflation and Germany's new eco taxes for last year's price rises.

"I'm sceptical about that claim," says Mr Saller, and on the streets of Munich most people seem to agree.