The solid recovery seen in the tourism and recreation sector during the spring and summer of this year has started to weaken, according to new data presented by Tobias Schuler, Hannah-Maria Hildenbrand and Martina di Sano at the European Central Bank (ECB).
The researchers point out that bookings, which were proxied by Purchasing Managers’ Indices (PMI) new orders, tend to lead prices in the tourism and recreation sector with an average lead of one to two months. The Purchasing Managers’ Index is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
The PMIs for the price series are often stable in this sector compared with, for example, the more volatile manufacturing sector, despite some earlier fluctuations related to higher uncertainty surrounding international travel.
As the tourism and recreation sector in the euro area gradually re-opened after each wave of the Covid-19 pandemic, input price cost pressures and an exceptionally strong recovery of demand for tourism and recreation services increasingly pushed up output prices.
Energy, according to the researchers, is one of the factors driving movements in input prices in the tourism and recreation sector. Energy import prices are strongly correlated with the movements of the PMI indicator for input prices. Energy import prices can be seen as a major driving factor behind the increase. Labor cost developments in this sector are less synchronized with the evolution of the PMI tourism and recreation input prices.
Tourism and recreation output prices peaked earlier in 2022. Though still strong, the consumer price dynamics for accommodation services may start to slow down. The Harmonized Index of Consumer Prices for accommodation services tends to lag somewhat behind the price increases in tourism and recreation reported by purchasing managers. According to the the ECB, both measures indicate that price pressures may have reached their peak.
Researchers forecast that due to the waning pent-up demand for travel, falling real incomes, rising uncertainty and higher prices, the demand for tourism and recreation services may be dampened in the coming months. The researchers consider that the data points to high but gradually stabilizing price pressures in the tourism and recreation sector.