Bank of England rate-setters may have a new conundrum as they look for signs that services inflation has cooled by enough to open the door to interest rate cuts: how to deal with the Taylor Swift effect.
Forecasters warn that Swift’s 10 UK concerts in June may have delivered a small boost to services inflation through hotel and ticket prices after a scramble by fans to see the pop phenomenon. Many “Swifties” traveled long distances to see the singer-songwriter, who put on shows in Edinburgh, Liverpool, Cardiff and London.
That gives the UK’s Monetary Policy Committee an extra consideration as they decide whether to cut borrowing costs on August 1. Traders see a 50/50 chance of a reduction but the rate-setters have remained wary about services inflation, which hasn’t eased as quickly as the central bank expected. Economists said the BOE may have to ignore a temporary boost to prices caused by the singer’s tour when making their decision.
“I’ve been quite cautious when it comes to cultural services inflation and also restaurants and hotels inflation,” said Paul Dales, chief UK economist at Capital Economics, who expects services inflation to remain stuck at 5.7 per cent. “I’ve popped in a little bit of upside from what might be some kind of Taylor Swift effect.”
He said the BOE should look through the Swift effect and “make judgments based on trends excluding that.”
Live events effect on inflation
It’s not unprecedented for a performer’s tour to feed through into a country’s national statistics. Last month statisticians in Sweden said that the arrival of Swift had boosted core inflation unexpectedly for the first time in more than a year as fans flocked to Stockholm. Beyonce’s tour was blamed for a similar effect in the country last year.
Robert Wood, chief UK economist at Pantheon Macroeconomics, increased his accommodation price prediction to a 0.4 per cent month-on-month gain because live music events, including Swift’s tour, raises the risk of a strong services number.
“It isn’t just Taylor Swift, there are lots of live music events going on. She would be a particularly important one,” he said. “The bigger point is she tends to play massive stadiums. Whoever it is who’s filling a stadium with 80,000 people is going to fill up a hotel.”
Ticket prices
Concert ticket prices could also be a source of upside risk as they count toward the inflation figures when the event takes place rather than when the tickets are bought.
But there’s a chance that any rise in hotel prices around some of the tour dates has been missed in the data collection process. While that data on tickets is collected throughout the month, hotel prices are only gathered on certain dates, meaning statisticians may have missed the effect of Swift’s tour. Only one of the tour dates in June “- in Cardiff “- lined up with a day that economists believe the Office for National Statistics may have collected data on hotels.
Lucas Krishan, macro strategist at TD Securities, said he expects tickets to have a bigger effect on services inflation than hotel costs, boosting it by as much as 3.5 basis points. While it would be a small upward pressure, it could prove to be the difference between services inflation cooling or staying stubbornly high at 5.7 per cent “- which would complicate the BOE’s judgments.
Krishan said that there could be a bigger effect on hotels in August when Swift returns to do more concerts in London. However, the size of London means any impact of “Swifties” filling up hotels may be smaller.
“There is one tour date there that lines up with one of the index days that it could be,” he said. London’s a big city so if there’s a big spike in hotel prices, then it could be an impact.”
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