European hotel, restaurant and bar owners were looking forward to this summer as millions of fans would attend the Euro, their concerts Taylor Swift and the Olympic Games.
But there are also some who are less enthusiastic: it is the central bankers who are concerned about the phenomenon persistent inflation.
And this happens because the race for major sporting and cultural events is already fueling price increases for many items in high demand in Europe: from hotel rooms to plane tickets.
Hotel costs in Portugal rose by almost 20% between April and May – pushing annual inflation in the sector to almost 14%.
Swifties
The reason; Taylor Swift’s tour and her two concerts in May in Lisbon.
Hotels in Germany have more than doubled Euro match night prices across the tournament’s 10 host cities, while bars and restaurants have seen an increase in demand since the games began.
The rise in prices in the hotel sector comes at a time when both the European Central Bank and the Bank of England remain concerned about persistent inflation in services.
And this, in turn, reduces expectations of a faster pace of interest rate cuts.
ECB policymakers are concerned that services inflation in the euro area is still too high, standing at 4.1% in May, the fastest pace since last October.
One of the biggest concerns among economists is that high 5% wage growth in the Eurozone is increasing costs and therefore prices in labor-intensive service companies such as hotels and airlines.
Happiness after lockdown
Consumers also show a tendency to spend more on services like restaurants and vacations during post-pandemic lockdowns – especially as their purchasing power is restored by wages rising faster than inflation.
ECB chief Isabelle Schnabel said this week that persistent services inflation was the “last difficult leg” on the tapering path, implicitly suggesting more flexibility on further rate cuts.
Data released in France and Spain on Friday showed that although the overall inflation rate declined in June due to a slowdown in energy and food prices, the trend was partially offset by persistent inflation in the services sector.
Inflation and the Euro
The Spanish statistics agency predicts a continuation of upward inflation trends driven by spending on leisure and cultural activities, while Goldman Sachs analysts forecast a further rise in eurozone services inflation to 4.2% in June, data that should be released next Tuesday. the tourist flow of Euro 2024″.
There are many images of the tourist “invasion”:
In the shadow of Cologne’s imposing cathedral, the Gaffel am Dom beer garden is packed every evening with fans eating, drinking and watching the games. The city groans but also thrives with an extra 100,000 visitors on match days.
Note that each table has pre-booked months in advance.
In the UK, Taylor Swift’s tour, which kicks off in Edinburgh in June, will put additional pressure on already high prices in the services sector. Hotel nights rose 12% in the UK in May, while concert tickets rose 11% year-on-year.
A total of 720,000 fans will attend his eight sold-out shows at Wembley.
The possibility of rising inflation could worry the Bank of England, leading to a later reduction in borrowing costs. And indeed, although headline inflation in the UK fell below the 2% target in May, services inflation remained alarmingly high, at 5.7%.
But there are also “cooler” views:
France is (?) different
Rob Wood, chief UK economist at Pantheon Macroeconomics, says the strength in domestic demand for hotels was already present in some parts of the UK: “Well, we doubt that hotel prices would have been driven up by a single event like a concert.”
And it’s true that Taylor Swift performed four shows in Paris in May, but that seemed to have little effect on the annual level of hotel prices in France, which was still at a three-year low (0.4%) last month.