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SIMON BROWN: I’m chatting with Paul Donovan, UBS Global Wealth Management chief economist. Paul, I appreciate the time. Two giant world tours are happening at the moment – Taylor Swift and Beyoncé. The question I suppose, is: are these concerts impacting inflation? I saw reports around mid-June that they certainly were having an impact. Your take on it? Certainly ticket prices are huge and people are spending.
PAUL DONOVAN: They are having an impact. And obviously, concert tickets, even for Beyoncé and Taylor Swift, are not that large a part of the consumer price inflation basket. However, they reveal I think two key issues with inflation that we’ve got at the moment. The first is …, because when you calculate ticket-price inflation, you’re not comparing the price of Beyoncé’s tickets this year with Beyoncé’s tickets last year, because Beyoncé wasn’t on tour last year. What you’re doing is you’re comparing a really worldwide star performer with two people in the band last year. So obviously, you’ve had an increase in quality reflecting in the increase in ticket prices, but all you report is the increase in ticket price. That’s your first issue.
Rather substantially, this is also, I think, reflecting the fact that there’s been a real change in consumer behaviour post pandemic, and the sort of fanaticism of people going on holiday – the determination that ‘This is a once in a lifetime concert, we must go for it’.
So consumer demand patterns have changed and consumers are spending I wouldn’t say quite recklessly, but they’re certainly more willing than ever to dip into savings for experiences. That’s creating a certain amount of price resilience, not just in the world of concerts, although that is I think one aspect, but in things like hotels and travel, restaurant spending.
There’s a lot more pricing resilience here because people are saying, ‘No, no, no, we must enjoy ourselves post pandemic’.
SIMON BROWN: That’s a great point. I know a number of people from South Africa who’ve either gone to Europe or North America to see one or other of them. I take your point on the concert tickets. But it is those hotels, it’s airlines and the like. We are pricing these perhaps a little more dynamically, and when there is suddenly a giant concert happening somewhere. oh, there’s an opportunity there to perhaps get a bit better rate in the hotel room or maybe a bit more from the restaurants.
PAUL DONOVAN: Exactly. And this, of course, is also affecting smaller cities, so a city like Stockholm in Sweden which is a relatively beautiful city but a relatively small city. Of course, Beyoncé toured there. And again, exactly as you were saying – not [people] from South Africa but people from the States who couldn’t afford tickets in the States were saying, ‘Well, we’ll fly to Stockholm, we’ll stay overnight in Stockholm. We’ll see the concert there’. That then led to higher prices for accommodation and ancillary service industries.
It sounds like a trivial point because, after all, what’s a concert ticket? But actually, it is quite a significant point – firstly because of this quality adjustment, and secondly because it’s just reflecting the fact that people’s priorities have really changed in the last few years.
SIMON BROWN: That’s a really, really great point, which I hadn’t thought of. Yes, we are talking concerts now but, for example, there’s a World Cup coming up in France later this year in rugby and the like, and maybe suddenly those sorts of events become so much bigger because so many more people travel across countries, across continents.
PAUL DONOVAN: Exactly. I think we’ve become a more globalised culture thanks to the rise of social media, and people feel more connected again because of what’s called para peripheral contact theory, which social media encourages. You feel you really know these people, you really understand these people. Actually, it goes beyond some of the big names. The big names are obviously doing these mega tours and Taylor Swift and Beyoncé are obvious examples, but there are also podcasters and YouTube stars who are starting to cash in on this as well, and people are moving around there because you feel you’ve got some connection, a sort of intimate association that you had perhaps 30 or 40 years ago.
When I was growing up, concerts were great, but they weren’t the mega events that they are now. The business model has changed and that is affecting pricing and various other industries, as you say, with travel and hotels. It’s all part of this story.
SIMON BROWN: It has become a different game. I read something over the weekend – that Taylor Swift makes in the region of $15 million per concert she does. Is this going to be transitory inflation, however, in the immediate sense? Everyone goes to Stockholm, there’s a spike over a weekend and maybe for a week, and it goes out of the system until the next big event. So it’s not a longer-term impact.
PAUL DONOVAN: Well, certainly, I think it will add volatility to inflation because, of course, as we get later on this year we will be comparing Two Men and a Banjo with Beyoncé for the price of tickets. So you’ll get disinflation as you go back to perhaps less well-known performers, and that will come through. So there’s that aspect, and there will be periods where travel demand comes down.
But I think there are risks around this in the sector as well. At the moment, the service sector is saying everyone’s going to keep going on holiday, and there has been a lot of resilience on this, the leisure travel, the experience – there has been a lot of resilience. But if you look at consumer durable goods, the original transitory inflation of 2020, it took about 18 months for that to completely reverse and start to slide into deflation, because you get that enormous surge of demand immediately after the pandemic. Everyone’s out refurnishing their houses and buying new televisions to get the collapse in pricing as that demand naturally fizzles out. I think there will be more resilience with the experience of the first sets.
But I think that as we go into next year there will come a point when you’re saying, well, you know, we really must go and see the next Taylor Swift concert. and you turn to your bank account and there’s nothing there. That’s the crunch point where maybe we just sit at home and stream it on Spotify instead.
SIMON BROWN: I take your point – volatility. I think a lot of bank accounts, a lot of savings accounts have been quite damaged over the last couple of months with these mega tours, as you say.
We’ll leave it there. Paul Donovan, UBS Global Wealth Management chief economist, I really appreciate the time.
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