Connect with us

Economics

Inflation spike in Europe is tied to the Olympics, Taylor Swift: UBS

Published

on

A general view of the Eiffel Tower with the Olympics rings pictured with national flags of competing countries from the Place du Trocadero ahead of Paris 2024 Olympic Games on July 21, 2024 in Paris, France.

Kevin Voigt | Getty Images Sport | Getty Images

The Olympic Games are causing a surge in prices, but French consumers aren’t likely to feel its pinch.

Mega events like the Olympics, or even big concerts like Taylor Swift’s Eras tour, lead to a rise in demand for hotel — rooms and airline tickets, as well as other goods and services needed by the influx of visitors. Even so, most consumers may not feel the impact, according to UBS. 

Still, the data might suggest otherwise. That’s because the method for calculating consumer price changes might pick up the spiking costs in industries associated with tourism — like hotels — and provide a distorted impression.

“The Olympic Games or a Taylor Swift concert create a sudden demand shock,” wrote Paul Donovan, chief economist at UBS Global Wealth Management, in a recent analyst note. “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 during The Eras Tour at Wembley Stadium on June 21, 2024, in London.

Kevin Mazur | Getty Images

This was already seen with the Eras Tour, as it boosted hotel revenue in cities across the U.S. where Swift was performing.

This year, U.K. hotel prices increased in June, but Donovan said the higher costs “may have been borne by a select group of aficionados of Swift’s music” given that the Eras Tour came to Wembley Stadium that month.

Meanwhile, the Summer Games are causing a similar 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 hotel boom?

Though hotels in the City of Light struggled in the beginning 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

Tourists pass near a banner with the Paris 2024 logo before the start of the Paris 2024 Olympic and Paralympic Games on June 17, 2024 in Paris, France. 

Chesnot | 

Small businesses across the city have also seen gains. Visa found that those businesses received a year-ove-year sales boost of 26% from cardholders in the Games’ first weekend.

While the long-term economic impact of the Paris Olympics is still uncertain, Donovan expects that “on balance it will probably be a positive,” citing past Games that have seen tourism booms like Barcelona in 1992. “If you get it right, it can be a boost,” he said, noting that Summer Olympics tend to garner more attraction than the Winter Olympics in general.

Paris 2024 may generate as much as $12 billion, or 11.1 billion euros, in long-term economic impact, a recent study from the Centre for Law and Economics of Sport estimated. The International Olympic Committee said the next two Summer Olympics could see even more value being created.

“What we see is that the economic impact of the Games is very substantial,” said Christophe Dubi, the Olympic Games executive 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 events become more sustainable economically, according to Victor Matheson, an economist and professor at the College of the Holy Cross.

This will be the first Summer Games projected to cost under $10 billion since Sydney 2000. Money was saved by having 95% of the venues be preexisting or temporary and the strategy could mark a “turning point” for the the Olympic movement, Matheson said.

“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 said. “Those sorts of things that can drive up costs pretty quickly, they don’t appear to be pushing that.”

Disclosure: CNBC parent NBCUniversal owns NBC Sports and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder to all Summer and Winter Games through 2032.

Don’t miss these insights from CNBC PRO

Economics

‘He should bring them down’

Published

on

U.S. President Donald Trump and U.S. Federal Reserve Chair Jerome Powell.

Win McNamee | Annabelle Gordon | Reuters

President Donald Trump on Friday lobbed his latest criticism at Federal Reserve Chair Jerome Powell, as the White House’s discontent for the economic policy leader hits a fever pitch.

During a Friday afternoon question-and-answer session with reporters, Trump pointed to examples of prices going down.

“If we had a Fed Chairman that understood what he was doing, interest rates would be coming down, too,” Trump said. “He should bring them down.”

Trump has long argued that the Fed, which sets monetary policy in the U.S., should cut down interest rates. His latest comments come as the White House has ratcheted up its attacks on Powell in recent days.

White House economic adviser Kevin Hassett said Friday that Trump and his team are assessing whether they can remove the Fed chair. Powell has said previously that he cannot be fired under law and intends to serve through the end of his term as chair in May 2026.

“The president and his team will continue to study that matter,” Hassett said at the White House after a reporter questioned if firing Powell “is an option in a way that it wasn’t before,” according to Reuters.

Trump posted on Truth Social on Thursday that “Powell’s termination cannot come fast enough.” His post included the nickname of “Too Late” for Powell, a continuation of Trump’s habit of giving satirical titles to political rivals.

His use of the word “termination” raised questions around if Trump was referring to Powell’s potential removal from his post ahead of schedule. Hassett said on Friday the administration will look at if there’s “new legal analysis” that would allow for Powell’s firing.

Powell appeared to irk Trump after saying Wednesday that the president’s contentious tariff plan could drive up inflation in the near-term and create challenges for the central bank in managing goals of high employment rates and price stability. Powell said Trump’s levies — many of which are currently on pause — are “likely to move us further away from our goals.”

“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said in prepared remarks before the Economic Club of Chicago. “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”

Powell also said that the Fed was “well positioned to wait for greater clarity before considering any adjustments to our policy stance.”

The Federal Open Market Committee has its borrowing rate currently targeted in a range between 4.25% and 4.5%, where it has sat since December. Fed funds futures are pricing in a more than 90% likelihood that the central bank holds rates steady again at its policy meeting next month, according to CME’s FedWatch tool.

As Trump’s team has scaled up criticisms, some Democrats have gone on defense. Sen. Elizabeth Warren, D-Mass., warned on Thursday that a president firing the Fed chief would be dire for U.S. financial markets.

“Understand this: If Chairman Powell can be fired by the president of the United States, it will crash markets in the United States,” Warren said on CNBC.

Continue Reading

Economics

China targets U.S. services and other areas after decrying ‘meaningless’ tariff hikes on goods

Published

on

Dilara Irem Sancar | Anadolu | Getty Images

China last week announced it was done retaliating against U.S. President Donald Trump’s tariffs, saying any further increases by the U.S. would be a “joke,” and Beijing would “ignore” them.

Instead of continuing to focus on tariffing goods, however, China has chosen to resort to other measures, including steps targeting the American services sector.

Trump has jacked up U.S. levies on select goods from China by up to 245% after several rounds of tit-for-tat measures with Beijing in recent weeks. Before calling it a “meaningless numbers game,” China last week imposed additional duties on imports from the U.S. of up to 125%.

While the Trump administration has largely focused on pressing ahead on his tariff plans, Beijing has rolled out a series of non-tariff restrictive measures including widening export controls of rare-earth minerals and opening antitrust probes into American companies, such as pharmaceutical giant DuPont and IT major Google.

Before the latest escalation, in February Beijing had put dozens of U.S. businesses on a so-called “unreliable entity” list, which would restrict or ban firms from trading with or investing in China. American firms such as PVH, the parent company of Tommy Hilfiger, and Illumina, a gene-sequencing equipment provider, were among those added to the list.

Its tightening of exports of critical mineral elements will require Chinese companies to secure special licenses for exporting these resources, effectively restricting U.S. access to the key minerals needed for semiconductors, missile-defense systems and solar cells.

In its latest move on Tuesday, Beijing went after Boeing — America’s largest exporter — by ordering Chinese airlines not to take any further deliveries for its jets and requested carriers to halt any purchases of aircraft-related equipment and parts from U.S. companies, according to Bloomberg.

Having deliveries to China cut off will add to the cash-strapped plane maker’s troubles, as it struggles with a lingering quality-control crisis.

In another sign of growing hostilities, Chinese police issued notices for apprehending three people they claimed to have engaged in cyberattacks against China on behalf of the U.S. National Security Agency.

Chinese state media, which published the notice, urged domestic users and companies to avoid using American technology and replace them with domestic alternatives.

“Beijing is clearly signaling to Washington that two can play in this retaliation game and that it has many levers to pull, all creating different levels of pain for U.S. companies,” said Wendy Cutler, vice president at Asia Society Policy Institute.

“With high tariffs and other restrictions in place, the decoupling of the two economies is at full steam,” Cutler said.

Targeting trade in services

China is seen by some as seeking to broaden the trade war to encompass services trade — which covers travel, legal, consulting and financial services — where the U.S. has been running a significant surplus with China for years.

China Beige Book CEO: U.S. needs to articulate what they want from China

Earlier this month, a social media account affiliated with Chinese state media Xinhua News Agency, suggested Beijing could impose curbs on U.S. legal consultancy firms and consider a probe into U.S. companies’ China operations for the huge “monopoly benefits” they have gained from intellectual-property rights.

China’s imports of U.S. services surged more than 10-fold to $55 billion in 2024 over the past two decades, according to Nomura estimates, driving U.S. services trade surplus with China to $32 billion last year.

Last week, China said it would reduce imports of U.S. films and warned its citizens against traveling or studying in the U.S., in a sign of Beijing’s intent to put pressure on the U.S. entertainment, tourism and education sectors.

“These measures target high-visibility sectors — aviation, media, and education — that resonate politically in the U.S.,” said Jing Qian, managing director at Center for China Analysis.

While they might be low on actual dollar impact given the smaller scale of these sectors, “reputational effects — such as fewer Chinese students or more cautious Chinese employees — could ripple through academia and the tech talent ecosystem,” he added.

Nomura estimates $24 billion could be at stake if Beijing significantly step up restrictions on travel to the U.S.

Weekly analysis and insights from Asia’s largest economy in your inbox
Subscribe now

Travel dominated U.S. services exports to China, reflecting expenditure by millions of Chinese tourists in the U.S., according to Nomura. Within travel, education-related spending leads at 71%, it estimates, mostly coming from tuition and living expenses for the more than 270,000 Chinese students studying in the U.S.

Entertainment exports, encompassing films, music and television programs, accounted for just 6% of U.S. exports within this sector, the investment firm said, noting that Beijing’s latest move on film imports “carries more symbolic heft than economic bite.”

“We could see deeper decoupling — not only in supply chains, but in people-to-people ties, knowledge exchange, and regulatory frameworks. This may signal a shift from transactional tension to systemic divergence,” said Qian.

Can Beijing get more aggressive?

Analysts largely expect Beijing to continue deploying its arsenal of non-tariff policy tools in an effort to raise its leverage ahead of any potential negotiation with the Trump administration.

“From the Chinese government’s perspective, the U.S. companies’ operations in China are the biggest remaining target for inflicting pain on the U.S .side,” said Gabriel Wildau, managing director at risk advisory firm Teneo.

Apple, Tesla, pharmaceutical and medical device companies are among the businesses that could be targeted as Beijing presses ahead with non-tariff measures, including sanction, regulatory harassment and export controls, Wildau added.

Shoppers and staff are seen inside the Apple Store, with its sleek modern interior design and prominent Apple logo, in Chongqing, China, on Sept. 10, 2024.

Cheng Xin | Getty Images

While a deal may allow both sides to unwind some of the retaliatory measures, hopes for near-term talks between the two leaders are fading fast.

Chinese officials have repeatedly condemned the “unilateral tariffs” imposed by Trump as “bullying” and vowed to “fight to the end.” Still, Beijing has left the door open for negotiations but they must be on “an equal footing.”

On Tuesday, White House press secretary Karoline Leavitt said Trump is open to making a deal with China but Beijing needs to make the first move.

“In the end, only when a country experiences sufficient self-inflicted harm might it consider softening its stance and truly returning to the negotiation table,” said Jianwei Xu, economist at Natixis.

Continue Reading

Economics

Donald Trump’s approval rating is dropping

Published

on

EVEN WHEN Donald Trump does something well, he exaggerates. He won the popular vote last November for the first time in three tries, by a 1.5 point margin. “The mandate was massive,” he told Time. In fact it was the slimmest margin since 2000, but it was an improvement on Mr Trump’s two previous popular-vote losses, by 2.1 points in 2016 and 4.5 points in 2020. (He was elected in 2016 through the vagaries of the Electoral College.)

Continue Reading

Trending