Inflation spike in Europe is tied to the Olympics, Taylor Swift: UBS
A common view of the Eiffel Tower with the Olympics rings pictured with nationwide flags of competing nations from the Place du Trocadero forward of Paris 2024 Olympic Video games on July 21, 2024 in Paris, France.
Kevin Voigt | Getty Photos Sport | Getty Photos
The Olympic Video games are inflicting a surge in costs, however French customers aren’t doubtless to really feel its pinch.
Mega occasions like the Olympics, and even large concert events like Taylor Swift’s Eras tour, lead to an increase in demand for resort — rooms and airline tickets, in addition to different items and companies wanted by the inflow of tourists. Even so, most customers might not really feel the impression, in accordance to UBS.
Nonetheless, the knowledge may recommend in any other case. That is as a result of the methodology for calculating shopper worth adjustments may choose up the spiking prices in industries related to tourism — like inns — and supply a distorted impression.
“The Olympic Games or a Taylor Swift concert create a sudden demand shock,” wrote Paul Donovan, chief economist at UBS World Wealth Administration, in a latest analyst observe. “The measurement method for these prices is more likely to capture the unusual and transitory pattern of demand, and it is here that the increase in consumer price inflation takes place.”
Taylor Swift performs onstage throughout The Eras Tour at Wembley Stadium on June 21, 2024, in London.
Kevin Mazur | Getty Photos
This was already seen with the Eras Tour, because it boosted resort income in cities throughout the U.S. the place Swift was performing.
This yr, U.Ok. resort costs elevated in June, however Donovan mentioned the greater prices “may have been borne by a select group of aficionados of Swift’s music” provided that the Eras Tour got here to Wembley Stadium that month.
In the meantime, the Summer season Video games are inflicting an identical phenomenon in Paris. “The tourists flocking to Paris for the Olympics, and paying the price, are not representative of French consumers,” he wrote.
A Parisian resort increase?
Although inns in the Metropolis of Gentle struggled in the starting of July, with an estimated 60% drop in occupancy rates that prompted hotels to discount rates, the trend during the Games has reversed. Paris hotel occupancy levels during the Olympics, which started on July 26 and run until Sunday, are up versus last year, according to global real estate data company CoStar. But in the days after the closing ceremony, Paris hotel bookings are projected to drop from a year ago.
The city’s hotel industry has also seen massive year-over-year price increases. For each day during the first full week of this year’s Games from July 28 until Aug. 3, CoStar found a 206% year-over-year growth in weekly revenue per available room. That was fueled by a 17.4 percentage point rise in occupancy to 85.4% as well as a gain in the average daily rate (ADR) of 143%.
The Paris tourist office expects an occupancy rate of 86% from Aug. 5 through Sunday.
A notable price surge has also been seen in other parts of France. In the surrounding Île-de-France region, CoStar found that ADR grew 83.4% in the week ended July 27 from a year ago. At the same time, Paris occupancy fell 5.7 percentage points year over year, while ADR jumped by 90.8%.
“Is your average French person looking to stay in Paris at the moment? No, they are absolutely not, not unless they’re insane or going to the Olympics,” he told CNBC in an interview. “Most of them are unaffected by the surge in prices.”
Olympic gains
That said, the Games are drawing huge numbers of tourists. During the first week alone, the Paris tourist office reported 1.73 million visitors in Greater Paris, an 18.9% increase from 2023.
Of these, 924,000 were international tourists — about a 14% uptick from last year — with the largest number of foreign visitors coming from the U.S. French tourists coming to the city rose 25.1% to 803,000 from last year.
In all, the tourist office has estimated a total of 15.3 million visitors for the Olympic and Paralympic Games, with 11.3 million for the former and 4 million for the latter.
Tourists take selfies in front of the Arc de Triomphe on July 07, 2023 in Paris, France. Paris will host the Summer Olympics from July 26 till August 11, 2024.
Matthias Hangst | Getty Images Sport | Getty Images
This comes as the Games tally record ticket sales. The Paris 2024 Organizing Committee recorded that a combined 10.6 million tickets have been sold or allocated for the Olympic and Paralympic Games so far, with at least 9.4 million for the Olympics and at least 1.2 million for the Paralympics. The previous record was held by the 1996 Atlanta Games at 8.3 million sold or allocated.
“What you find quite often is that tourism unrelated to the Olympiad falls off the edge of a cliff,” Donovan told CNBC, adding that this is what differentiates it from the Eras Tour and other mega events. “It’s a demand shock, but it’s a narrowly focused demand shock, which is sort of the problem on the inflation side, because you’re creating a concentrated period of absolutely supernormal demand. The pricing mechanism goes bananas basically.”
Demand fluctuations have also been seen in other related areas of the Parisian economy, such as the airline industry. Despite some airlines forecasting declines in third-quarter revenue as a result of less traffic to Paris this summer, recent Visa data exhibits flight bookings to the metropolis have elevated 39% in the interval main up to the Olympics over the year-ago interval.
Vacationers go close to a banner with the Paris 2024 emblem earlier than the begin of the Paris 2024 Olympic and Paralympic Video games on June 17, 2024 in Paris, France.
Chesnot |
Small companies throughout the metropolis have additionally seen beneficial properties. Visa discovered that these companies obtained a year-ove-year gross sales increase of 26% from cardholders in the Video games’ first weekend.
Whereas the long-term financial impression of the Paris Olympics is nonetheless unsure, Donovan expects that “on balance it will probably be a positive,” citing previous Video games which have seen tourism booms like Barcelona in 1992. “If you get it right, it can be a boost,” he mentioned, noting that Summer season Olympics have a tendency to garner extra attraction than the Winter Olympics in common.
Paris 2024 might generate as a lot as $12 billion, or 11.1 billion euros, in long-term financial impression, a recent study from the Centre for Legislation and Economics of Sport estimated. The Worldwide Olympic Committee mentioned the subsequent two Summer season Olympics may see much more worth being created.
“What we see is that the economic impact of the Games is very substantial,” mentioned Christophe Dubi, the Olympic Video games govt director. “This is an injection of resources in the local economy that leaves a profound impact now and in the future.”
The IOC’s Agenda 2020 reforms have helped the occasions grow to be extra sustainable economically, in accordance to Victor Matheson, an economist and professor at the School of the Holy Cross.
This can be the first Summer season Video games projected to value under $10 billion since Sydney 2000. Cash was saved by having 95% of the venues be preexisting or temporary and the technique may mark a “turning point” for the the Olympic motion, Matheson mentioned.
“The IOC has allowed Paris to come through with an Olympics that doesn’t build these billion-dollar monuments at the Olympics and doesn’t gold-plate everything there,” he mentioned. “Those sorts of things that can drive up costs pretty quickly, they don’t appear to be pushing that.”
Disclosure: CNBC dad or mum NBCUniversal owns NBC Sports activities and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder to all Summer season and Winter Video games by way of 2032.