A Surge In Tourism Prices: Spain’s Role In The Inflation Challenge

Is the sharp rise in tourism prices becoming a new obstacle for the European Central Bank (ECB) in its battle against inflation? With annual price increases in flights, hotels, and restaurants exceeding 5.3 per cent of general inflation.

On July 27, Christine Lagarde, the president of the European Central Bank, announced the ninth interest rate hike in a year. During her media conference, she mentioned tourism only once, highlighting its resilience to these increases, while other sectors like industry and investment were negatively affected, writes Nuis Diario.

‘The strength of tourism is precisely what may end up becoming a stone in the road in the ECB’s battle to control inflation,’ said Lagarde. In July, the euro area’s harmonised rate stood at 5.3 per cent, two-tenths less than the previous month, according to data confirmed by Eurostat.

Services contributed the most to the year-on-year inflation rate, almost 2.5 percentage points, followed by food, alcohol, and tobacco at 2.2 points, and non-energy industrial goods at 1.2. Inflation in services reached 5.6 per cent last month, the highest in the series.

In Spain, domestic tourist packages grew by 32.1 per cent, and international packages saw significant increases, with Ireland at 64 per cent, Finland at 22 per cent, and Spain at 17.8 per cent. Domestic flights grew by nearly 18 per cent, and international ones by 4.2 per cent.

Hotel services also reflected this trend, with hotels becoming more expensive by around nine per cent in July compared to the previous year, and restaurants and cafeterias by 7.2 per cent. In Spain, the sector attributes this rise to energy bills and the incessant rise in food prices.

Tourism Figures Recovery Following Covid

The recovery of tourism after the COVID crisis has become a reality this summer. In Spain, the number of tourist overnight stays in May was 4.4 per cent higher than in 2019, and the country accumulated almost 37.5 million international visitors in the first half of the year.

Although the figure is still 1.6 per cent below the pre-pandemic year, the spending by these tourists exceeds €46,000 million, 14.3 per cent more than in the first half of 2019. Other main tourist destinations in the eurozone are also enjoying recovery.

The evolution of tourist prices after the high summer season will be key to determining this sector’s role in inflation. The ECB, meeting again on September 14, left open the possibility of pausing rate hikes, currently at 4.25 per cent. ‘What happens then, will not mark the definitive path, but the decision will be reviewed based on the data that the agency receives,’ Lagarde said.