Inflation spike in Europe linked to Olympics, Taylor Swift: UBS

The Olympics are causing prices to rise, but French consumers are unlikely to feel the impact.

Mega-events like the Olympics, or even mega-concerts like Taylor Swift’s “Eras” tour, drive up demand for hotels—rooms and airfares, as well as other goods and services needed to accommodate the influx of visitors. Yet most consumers may not feel the impact, according to UBS.

But the data may suggest otherwise. That’s because the way consumer prices are calculated may pick up higher costs in tourism-related industries — such as hotels — and leave a distorted impression.

“The Olympics or a Taylor Swift concert would create a sudden shock to demand,” Paul Donovan, chief economist at UBS Global Wealth Management, wrote in a recent analyst note. “How these prices are measured is likely to capture the unusual and transitory pattern of demand, and that’s where the consumer price inflation spikes.”

This has already been evident with the Eras tour, which has increased hotel revenue in cities across the US where Swift has been performing.

Hotel prices in the UK have risen this year in June, but Donovan said the higher costs were “probably borne by a select group of Swift fans” given that the Eras tour was held at Wembley Stadium that month.

Meanwhile, the Summer Olympics are causing a similar phenomenon in Paris. “The tourists who flock to Paris for the Olympics, and pay the price, do not represent French consumers,” he wrote.

Although hotels in the City of Light suffered in early July, with occupancy rates down by about 60%, prompting hotels to slash rates, the trend reversed during the Games. According to global property data company Costar, hotel occupancy levels in Paris during the Olympics, which began on July 26 and run through Sunday, were higher than last year. But in the days following the closing ceremony, hotel bookings in Paris are expected to be lower than they were a year ago.

The city’s hotel industry has also seen massive year-over-year rate increases. Every day during the first full week of the Games this year, from July 28 to August 3, CoStar saw a 206% year-over-year increase in weekly revenue per available room. This was supported by a 17.4 percentage point increase in occupancy to 85.4% and a 143% increase in average daily rate (ADR).

The Paris Tourism Authority expects occupancy to reach 86% from August 5 to Sunday.

Other parts of France also saw a notable rise in prices. In the neighboring Île-de-France region, Costar found that the average daily room rate was up 83.4% in the week ending July 27 compared to last year. Meanwhile, occupancy in Paris fell 5.7 percentage points year-on-year, while the average daily room rate was up 90.8%.

“Is the average French person looking to live in Paris right now? No, they're not going to, unless they're crazy or going to the Olympics. Most of them are not affected by the price hikes,” he said in an interview with CNBC.

However, the Games are attracting huge numbers of tourists. During the first week alone, the Paris Tourist Office reported 1.73 million visitors in the greater Paris area, an 18.9% increase over 2023.

Of these, 924,000 were international tourists – up 14% from last year – and the largest number of foreign visitors were from the United States. The number of French tourists to the city rose 25.1% to 803,000 from last year.

In total, the tourism office estimated the total number of visitors to the Olympic and Paralympic Games at 15.3 million, with 11.3 million visitors to the first edition and 4 million visitors to the second edition.

This comes as the Games have recorded record ticket sales. The Paris 2024 Organising Committee has reported that a total of 10.6 million tickets have been sold or allocated for the Olympic and Paralympic Games so far, with at least 9.4 million for the Olympic Games and at least 1.2 million for the Paralympic Games. The previous record was set by the Atlanta 1996 Games, when 8.3 million tickets were sold or allocated.

“What you often find is that non-Olympic tourism goes off the rails,” Donovan told CNBC, adding that this is what sets it apart from the IRAS and other mega-events. “It’s a demand shock, but it’s a narrowly focused demand shock, which is kind of the problem on the inflation side, because you create a concentrated period of absolutely extreme demand. The pricing mechanism basically goes crazy.”

Demand fluctuations have also been seen in other areas of the Parisian economy, such as the airline industry. Although some airlines are forecasting a decline in third-quarter revenues due to the drop in traffic to Paris this summer, recent Visa data shows that flight bookings to the city increased by 39% in the run-up to the Olympics compared to the same period last year.

Small businesses across the city also saw gains. Visa found that these businesses saw a 26% year-over-year increase in sales from cardholders in the first weekend of the games.

While the long-term economic impact of the Paris Olympics remains uncertain, Donovan expects it to be “overall positive,” citing previous Games that saw a tourism boom, such as Barcelona in 1992. “If it works, it could be a boost,” he said, noting that the Summer Olympics tend to attract more attention than the Winter Olympics in general.

A recent study by the Centre for Sports Law and Economics estimates that Paris 2024 could generate up to $12 billion, or €11.1 billion, in long-term economic impact. The IOC said the next two summer Games could see even more value created.

“What we see is that the economic impact of the Games is very significant,” said Christophe Dubi, CEO of the Olympic Games. “It is an injection of resources into the local economy that has a profound impact now and in the future.”

Victor Matheson, an economist and professor at the College of the Holy Cross, said the IOC's Agenda 2020 reforms had helped make the events more economically sustainable.

It will be the first Summer Games expected to cost less than $10 billion since Sydney in 2000. Matheson said the money saved was by making 95 percent of the venues pre-existing or temporary, and that the strategy could represent a “turning point” for the Olympic movement.

“The IOC has allowed Paris to have an Olympics that doesn't involve building these multi-billion dollar monuments to the Olympics and doesn't adorn everything there with gold. The IOC doesn't seem to encourage that kind of thing that can quickly escalate costs,” he said.

Disclosure: NBCUniversal, the parent company of CNBC, owns NBC Sports and NBC Olympics. NBC Olympics holds the U.S. broadcast rights to all Summer and Winter Games through 2032.