Experts lament that once the restrictions imposed by the coronavirus epidemic are lifted, people can start spending their money on services, such as travel, with such vehemence that it can get rid of inflation. Travel agents are ready to jump, hotels are careful.
Europe’s dormant economy is tormented by the nightmare that once it wakes up, prices will break free. The question is, when the restrictions end and consumption can start in the sectors, especially hospitality and tourism, which have been hit hardest by the pandemic, will there be enough demand to raise prices significantly? writes Bloomberg. People are expected to rush to hairdressers, restaurants and travel agencies after their savings forcibly increase during the closure.
Some economists expect inflation to pick up after sudden increases in demand in all sectors, from transport to holidays. Bond yields, forecasters of inflation risks, are rising worldwide, suggesting that investors are selling their bonds because securities that promise a fixed coupon (yield) are a bad investment in an inflationary environment. Meanwhile, retail sales in the US are growing We are seeing an increase in prices in the UK, meaning consumer demand is strengthening in the two countries that are doing relatively well with vaccinations.
Eurozone inflation is expected to be 0.9 per cent last year and at least two factors are holding back the acceleration of monetary deterioration. One is that immunization against the virus is slower here, and the other is that unemployment is at an unprecedented level in terms of peacetime. We are both hopeful and anxious, ”said Christos Paschos, a Greek hotel owner. Last year, it was forced to cut prices by 15 percent to attract few guests. He has no plans to raise prices compared to 2020 yet, but as he says, we’ll see what happens next.
Economists expect a horizontal K-shaped recovery in which some sectors may start up steeply, while others may expect more modest expansion. This is also influenced by the fact that each government runs various economic stimulus programs and the spending of the EU Recovery Fund starts slowly.
Some providers, such as hairdressers, warn that they are forced to raise prices because they work at a low profit rate while not being able to operate at full capacity. We are seeing a price increase after many businesses can only receive half as many guests as they could, said Harald Esser, president of the German Hairdressers Association. In the eurozone, we see that while hairdressers are raising, hotels are giving discounts and restaurants are keeping their prices.
Where is the money?
Those expecting inflation argue that states and central banks have poured an awful lot of money into the economy for crisis management, which will inevitably lead to inflation. The question, of course, is whether money goes into consumption, as the rise in cryptocurrencies and the rise in daily stock trading of small investors (facilitated by the Reddit community portal) suggest that money may flow elsewhere. In stock market speculation, it can then lose its value as quickly as inflation rises.
Consumers who had a stable job during the pandemic could put a lot of money aside after not being able to spend on travel, for example. Maeva Cousin, an analyst at Bloomberg Economics, estimates that € 300 billion more money than usual flowed into eurozone banks last year due to limited spending opportunities.
The people would travel
Manabesh Chatterjee, head of travel agency PlanReisen in Frankfurt, reports a very strong interest, with many looking forward to finally being able to travel. TUI AG recently indicated that the price of summer bookings is 20 percent higher than in 2019. Fritz Joussen, the company’s chief executive, says this is clearly due to money accumulated in bank accounts over the course of a year.
The European Central Bank sees that while there will be soaring prices here and there, the expiration of central incentives such as tax breaks will curb rising prices. The bank predicts a one per cent rise in prices in the eurozone by 2021, which will go up to just 1.4 per cent by 2023.
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