In the battle against inflation, some new villains have emerged, Beyonce and Taylor
Swift (or Tay Tay as she is known on this channel).
Higher interest rates are supposed to reduce the demand for goods and services, especially
discretionary goods . Both the US Federal Reserve and the ECB have
been raising rates quite aggressively of late, and they both hiked interest rates once again
this week.
US rates are now at the highest level in 22 years and European rates are at their record
high, matching the level they reached in 2001, when the ECB was trying to boost the value
of the newly launched euro.
So why, after a series of interest rate hikes and a surge in the price of essential goods
like food and energy — are we seeing Taylor Swift’s latest tour break records and Beyoncé
stand accused of boosting the entire nation of Sweden’s inflation rate during her two-night
stay in Stockholm this May?
Beyoncé’s World Tour, (her first solo tour in seven years), kicked off this May in Stockholm
and fans from around the world took advantage of the attractive exchange rate and flew in
to buy tickets that worked out cheaper in Sweden than in the United States or Britain
at the time.
The type of ticket that cost $2,000 dollars in the United States was going for around
$200 dollars in Stockholm, so Beyonce fans (known as the Beyhive) flew to Sweden booking
up hotels and restaurants, leading to the Beyonce blip.
Fans allegedly booked up every hotel room for 40 miles around the concert venue.
The country’s CPI hit 9.7% that month- which was higher than expected.
And a local economist announced that “Beyoncé was responsible.”
That is right…
Beyonce stands accused of inflicting economic hardship on the people of Sweden.
Bruce Springsteen, Elton John, Harry Styles and Ed Sheeran are all embarking on major
tours this year, with millions rushing to see the shows — even if the tickets, travel
and accommodation are very expensive.
Taylor Swift fans, (or Swifties as they are known), are expected to spend around $600
million dollars on tickets for her current US tour— which (while a big number) is a
small portion of overall US consumer spending.
American consumers spent almost $7 trillion dollars over an equivalent period last year
(a lot of that probably went on those huge water bottles that they carry everywhere).
And if that is the case, should they be stopped for the good of humanity??
Before we dig into that let me tell you about today’s video sponsor Proton Mail.
Most big tech companies who give you a free email address analyze your emails and use
the information they collect to advertise to you on every other website you visit.
With Proton Mail, your inbox is private by default and secured with end-to-end encryption
and two-factor authentication.
Only you and your intended recipients can read your emails.
Based in Switzerland, Proton Mail is the world’s largest secure email service with a hundred
million customers worldwide.
End-to-end encryption means your data is less vulnerable to potential data breaches because
even Proton themselves don’t have access to your encryption keys.
Unlike Big Tech companies, Proton doesn’t collect or monetize your data, or fill your
inbox with adverts.
Their business model is based on protecting your privacy, where you are the customer,
not the product – being sold to advertisers.
You can use the free version of Proton or upgrade to a paid subscription to get advanced
features and support the company’s mission to make privacy the default online.
Click the link in the description below to get started for free with Proton and secure
your email with strong encryption.
So, does something need to be done to slow down the inflationary impact of major concert
tours?
Well, some people feel that it should, Tay Tay is putting on six shows in Singapore next
March – these are her only dates in South East Asia and demand is very high.
Singapore’s education minister was inundated with requests for an ad hoc school holiday
for the dates of the tour, but he refused this in case the concerts “fuelled further
inflation”.
Minister Chan explained that he had to refuse because he was concerned about how fans of
other music acts that were visiting Singapore such as Coldplay, among others, would feel
if the Ministry of Education acceded to the school holiday request from Swifties.
I would imagine that most people would actually request an additional day of work or school,
to give them an excuse to avoid attending a Coldplay concert, but maybe that’s just
me.
I mean come on…
Coldplay???
Economists are used to digging through what many would consider fairly dull data to try
and understand what is going on in the global economy, and when they feel that Beyonce is
not getting the treatment that she deserves, they sometimes jump to her defense – not
unlike Kanye West.
And as Kanye West would probably tell you, a badly timed defense of Beyonce can come
off as an attack on Taylor Swift.
Anyhow, analysts from Creditsights (a research firm) compared hotels’ revenue per available
room, for the stops on Tay Tay’s current tour to the average for the US’s top 25
markets on those show dates.
They found what they have named the T-Swift Lift.
The chart on screen shows the spike in revenue per available room for the dates of TayTay’s
concert in Nashville Tennessee.
Nashville hotels’ revenues per available room more than doubled from the same period
the prior year.
The chart on screen right now shows the size of the T Swift Lift for the different cities
played on her tour, and the pop in Nashville is the most extreme.
Cities like New York, Boston and Las Vegas had much more muted reactions, they might
simply be better able to handle big events like a Taylor Swift concert, but it is also
worth noting that TayTay got her start in Nashville and considers it her hometown, so
fans might have been more excited to see her play Nashville than any other city.
CreditSights even found one hotel executive in their research who estimated that the Swifties
would boost room revenues for the hotel by 1 per cent for the entire year.
So big events like this are helping the hospitality industry in the towns they visit, but does
this mean that they are inflationary?
Well, Inflation is calculated from the change in prices of a basket of goods.
In the United States the BLS record the prices of around 80,000 items each month.
Data on rents is gathered from around 50,000 landlords and tenants.
The CPI-U (which is The Consumer Price Index for All Urban Consumers) is the most widely
cited inflation metric in the United States, but its not the only version of the CPI being
calculated.
The basket of goods and services is supposed to represent a scientifically selected sample
of the prices paid by consumers for goods and services purchased at a given point in
time.
The items sampled, and their weights in the overall index, are determined by the Consumer
Expenditure Survey, which is carried out for BLS by the Census Bureau.
There are a number of other inflation statistics also being calculated such as the chained
CPI, which aims to reflect how consumers alter their buying patterns in response to changes
in relative prices – for example, they might buy more chicken if beef becomes more expensive.
Concerts and hotel rooms are in the basket of goods being measured but they have such
a light weight that national inflation shouldn’t be expected to jump as a result of a single
event, unless it is on a huge scale.
A spike in hotel room rates near a big event caused by a surge in demand might often be
offset by a fall in costs elsewhere.
A hotel far away from the event might see a dip in demand over a big concert weekend,
and lower room rates to attract customers.
Additionally, fans who spend a large amount on a Taylor Swift concert ticket are likely
to cut costs on other items, bringing down demand—and in theory prices—for those
goods for a short time.
In my last video on whether the luxury goods bubble is bursting, I mentioned that wealthy
Americans appear to have switched from spending money on branded fashion goods and are instead
spending more on travel and holidays.
Since that video, LVMH reported what was described as a surprising drop in U.S. sales this Tuesday,
as its chief financial officer said “aspirational customers are not shopping as much as they
used to.“ It might be that their target customers spent their disposable income on
Taylor Swift tickets rather than on a new outfit or handbag.
Smaller countries, like Sweden or Singapore might see a surge in demand when there is
a big event, but they don’t need to worry about inflation being driven by a Beyonce
or Taylor Swift – or even a Coldplay concert.
Thousands of Swifties or members of “The Beyhive” may be likely to fly in from neighboring
countries and boost the local economy for the few days that the concert is on.
This additional demand is likely to temporarily push up hotel prices or make it difficult
to get a table at popular restaurants.
Locals might spend some of their savings too, money that they won’t be spending in the
future until their finances recover.
James Pomeroy, an economist at HSBC, pointed out that while the month-on-month 8.7% increase
in Swedish accommodation costs in May fits with the general Beyoncé explanation, the
cost of food, package holidays and pets nationally in Sweden were also to blame for the high
annual figures.
“So while Beyoncé may have caused a shock to one month’s data, she is not the reason
for inflation in Sweden being well above the central bank’s target.”
Any negative economic effects that people might be worried about in such situations
will usually be short lived.
When Swifties return to their homes, prices near the concert venue can be expected to
fall; hotels can’t charge Swiftian rates once the event is over.
In fact, the inflation rate might even look a little bit lower the following month until
people’s savings recover.
So, despite what you may have read in the press, tours are probably not something central
bankers should worry too much about.
So why have concert tickets become so expensive in recent years?
the BBC reports that average ticket prices for big arena gigs have more than doubled
since the late 1990’s.
Well, ever since music streaming replaced CD sales, the amount of income that artists
and performers receive from their songs has fallen considerably.
Because of this loss of income, musicians have had to switch to making most of their
money from concerts, which means that ticket prices have gone up.
The musicians aren’t trying to take advantage of their audiences, it’s just that historically
a tour was viewed as a way to boost record or CD sales, while today it is the main source
of income for a musician or a band.
You get to listen to the music online for free, but if you want to see it live, it’s
more expensive.
The average cost to see Taylor Swift is $254 per ticket today.
Because live performance has become a musician’s main source of income, they are focusing much
more on putting on great shows today.
The shows you attend today are much more professional than they were in the past, with better sound,
better lighting and better venues.
All of this costs a lot of money.
Today’s musicians play fewer small venues than they used to.
One reason for this is the competition to stage bigger and better shows.
This is possibly why TayTay has decided to perform her only South-East Asia dates in
Singapore.
Moving expensive stage sets around is riskier and more expensive than playing multiple times
at the same venue, if the demand is there.
The ticket industry has become more of a monopoly over time, pushing up prices, and because
ticket sales have moved online, scalpers have been able to buy up tickets in a way they
couldn’t in the past to resell them at a premium to music fans.
To combat this ticket sellers have moved to a dynamic pricing model where prices rise
and fall with demand, this can seem unfair to music fans, but it really just means that
the price premium that people are willing to pay is going into the pocket of the artists
rather than ticket scalpers.
The economics of live music may be changing a lot—but that probably shouldn’t keep
central bankers awake at night.
If you enjoyed this video, you should watch my video on why central bankers don’t care
about rising home prices next.
Don’t forget to check out our sponsor Proton by clicking on the link in the description
below.
Have a great day and see you in the next video.
Bye.