Inflation Remains High, but Travel is Getting Significantly Cheaper
September 14, 2022 By Aaron Szyf, Economist , U.S. Travel Association
The big picture: The latest Consumer Price Index (CPI) shows that inflation remained stubbornly high in August, and overall prices were at roughly the same levels (+0.1%) as July.
Go deeper: On a year-over-year basis (YOY), CPI was up by 8.3%, better than July’s YOY growth of 8.5% and June’s 9.1% but worse than the 8.1% that was expected.
On the other hand: Travel prices declined considerably in August.
By the numbers: On a monthly basis, the Travel Price Index (TPI) declined by 1.8% in August. In fact, August 2022 marked the second-consecutive monthly TPI decline after months of continuous increases since January 2022.
- Gas prices declined by 10.5% and registered the strongest monthly decline since April 2020, while airfare declined by 4.6%.
- Lodging fares and recreation were virtually unchanged while food away from home prices increased by 0.9%.
On a year-over-year basis, TPI inflation (+10.8%) was considerably lower than it was in July (+11.5%) or June (+17.5%).
Yes, but: While the past two months saw declines in travel prices, they remained higher than overall prices.
- The YOY change in TPI (+10.8%) was significantly higher than that of CPI (8.3%), while gas prices (+26%) and airfare (+33%) remained even more inflated.
Dig even deeper: Though travel prices remain high, the latest monthly declines in TPI—particularly gas and airfare—is welcome news for travelers. But the higher-than-expected level of overall inflation and expectations of further rate increases from the Federal Reserve have increased the risk of a recession.
Furthermore, gas prices may also soon enter another inflationary phase as Treasury Secretary Janet Yellen just warned that gas prices could spike again this winter.
- All of this creates additional risk for the travel industry and can hamper the recovery of domestic business and international inbound travel, while possibly also suppressing domestic leisure travel.
But the resiliency of the labor market as well as ongoing demand resilience for travel will likely help limit any slowdown in travel’s recovery. While many people had the opportunity to travel over the summer, elevated prices—and service cuts—have led others to reconsider, limit or delay travel.
Now that travel prices are becoming more reasonable, we can expect that the continued pent-up demand for travel—as well as an overall post-COVID-19 transition to favoring services over goods—will continue to fuel travel’s recovery and growth.
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