According to the Financial Times, there are many signs that costs have risen across the tourism industry.
In the summer the tourism has sparked a new wave of inflationary pressures, which could further complicate the ECB's efforts to control prices in the European bloc.
“Our visitors think we are taking advantage of the high demand. They do not take into account the high inflation, which we are all facing,” Isidora Handeli, one of the managers of the Verina hotels in Sifnos, told the Financial Times. “Just so you know, an egg last year cost 25 cents, now it's 45 cents.”
The phenomenon concerns all tourist destinations in Europe, where businesses in the sector pass on the increased costs to their customers. The cost of flights, hotel rooms and overall vacations has risen rapidly as tourism returns to 2019 levels.
Pros and cons of the tourism recovery
In particular, the recovery of tourism, which directly contributes about 4% of the EU's GDP. and indirectly 10%, strengthened the resilience of the European economy, which grew by 0.3% in the first and second quarters of the year. However, this recovery also contributes to the rise in the cost of services. According to Eurostat data, annual inflation in the services sector reached 5.6% in July, reaching a historic high and of course well above the target set by the ECB.
Fabio Panetta, member of the ECB's executive board, attributed the escalation in service costs to “strong” consumer spending on holidays and travel. “It is important to monitor this element and its impact on risks to the headline consumer price index,” he noted.
According to the Financial Times, there are many signs that costs have risen across the tourism industry. For example, Accor, the largest hotel chain in Europe with at least 3,000 locations on the continent, said that the average room rate increased by 18% in the first half of the year compared to the same period last year.
Also, the average booking price through the largest European tourism organization TUI Group increased by 7% in the second quarter compared to last year, as a result of which the group showed profits for the first time since the pandemic. The group's CEO said this month that the recent heat wave and wildfires in Europe only temporarily weighed on previously strong momentum.
In addition, the weighted average price of flights in Europe increased by 31 .6% from last year, according to RDC data.
Finally, data from the Airports Council International Europe (ACI Europe) show that more visitors are arriving from outside Europe, especially from the USA. These tourists tend to spend much more on their holidays than Europeans.
According to research by the European Travel Commission, 41% of visitors to Europe are expected to spend at least 1,500 per person on vacation this year compared to 33% last year.
Demand at high levels
Meanwhile, despite rising prices, demand is growing. For example, Italy's tourism minister, Daniela Santanchè, predicts at least 19 million tourists and 10 billion euros in travel revenue in July, despite the fires and floods. However, bookings fell 1% year-on-year in August.
Greece welcomed 5.7 million international tourists in the first five months, an increase of almost 33% compared to the same period last year and surpassing pre-pandemic levels. Tourism receipts reached €1.74 billion in May, almost 25% higher than the same month in 2022.
Croatia, the newest member of the Eurozone, welcomed 2.7 million foreign tourists in June, up 2.8% from last year.
The picture is similar in Spain, where Tourism Minister Héctor Gómez spoke of a surprising recovery, after 9.1 million visitors arrived in June, 10% more than last year.
“People spend less money on cars or buy less clothes, but they don't skip holidays,” said Ramón Estalella, secretary general of Spanish accommodation group CEHAT.
The ECB's next moves
The mild deceleration in inflation that has been trending up lately may not be enough to stop interest rate hikes in the Eurozone.
At the July meeting, the central bank left open the scope for a pause in the monetary policy tightening cycle from September. However, the Financial Times notes, if services inflation remains high, then it may “convince” officials that further rate hikes are needed.
“Doves will be able to argue in September that , based on lower growth forecasts, the ECB should stop tightening,” said Holger Schmieding, chief economist at Germany's Berenberg bank. However, “the problem is that an expensive summer tourist season could keep the structural
With information from the Financial Times