How Does Inflation Impact Travel?

There are a number of factors that impact your choice of a holiday destination, some of which are universally important and others that only apply at specific times.

Take inflation, for example, which is present in every functioning economy but has continued to scale at a disproportionate rate to earnings since Russia’s invasion of Ukraine in February last year. Of course, there are other factors causing inflationary pressures at present, each of which is causing the cost of living to spiral even in developing economies like the US.

Rising inflation can have a significant impact on travel, in more ways than you may think too. I’ll explore these in the article below while asking how you can reduce the cost of your trips without compromising on the overall travel experience!

How is Inflation Faring Now?

There’s no doubt that inflation remains a significant issue throughout the Western world, although the US has seen the base rate of inflation depreciate for four consecutive months since the third quarter of 2022.

According to the latest figures, inflation tumbled to 4.98% in March, from 6.04% during the previous month and the 12-month average of 8.54% recorded through 2022.

So, although it remains slightly higher than the long-term average in the US, inflation is constantly moving in the right direction as the Federal Reserve looks to drag the base rate back towards its 2% target.

Interestingly, US inflation is less than half of that recorded by the UK, where the rate of inflation and the Consumer Prices Index (CPI) rose to 10.4% in February. Interestingly, the Bank of England (BoE) also has a desired inflation target of 2%, but the UK is struggling with a wider range of issues including the ongoing impact of Brexit and poor economic management.

Appraising the Impact of Inflation on Travel

The most obvious impact of inflation (from a traveler’s perspective at least) can be observed through its influence on the purchasing power of local currencies.

Remember, the value of currencies is set by a free-floating exchange rate, which is impacted by a huge number of macroeconomic variables. These include inflation, which can begin to erode the purchasing power of afflicted currencies when inflation rates inch above the 2% target set by the Federal Reserve.

So, although the rate of inflation continues to fall, it’s more than double the Fed’s target for a healthy economy. This reduces the purchasing power of the USD in relation to other currencies, and you’ll notice this both at the point of exchange and when buying goods on your travels.

If we look at the impact of the coronavirus on supply chain functionality and inflation, we can also see that various travel costs soared as part of a much broader increase in the cost of living. In the year ending December 2021, for example, the average cost of flights increased by 1.4%, whereas eating out overseas became approximately 6% more expensive.

Even larger price increases were observed elsewhere, with the cost of renting a vehicle up by a staggering 50.8% on average. Hotel and accommodation costs soared by 27.6% during the same period, creating a significant strain on household budgets at a time when earnings remain stagnant.

This is also impacting the decisions of holiday makers, especially in terms of where they visit and the time they intend to spend overseas.

An October 2022 poll found that rising travel prices had encouraged nearly a third of US citizens to select less expensive holiday destinations, while some 86% of Brits aged between 25 and 34 said that the cost of living was directly impacting their travel plans.

How to Cope With and Manage Inflation

Before we bring the article to a close, we’re going to look at the practical steps you can take to cope with and successfully manage inflation. These include:

Choose Your Travel Dates Wisely: If you want to make informed selections that can reduce costs but don’t want to compromise on your choice of destination, you could instead consider the dates that you intend to travel. If this is a viable option and you have flexibility in your schedule, you may find cheaper flights at particular times of the year depending on your destination, while you can also save money by flying on a Tuesday, Wednesday, or Saturday.

Plan and Book in Advance: While last-minute bookings can unlock savings on undersold flights, this is a risky pastime that may not deliver the desired outcome. Instead, it’s far better and more practical to plan proactively and book way in advance, ideally anywhere between one and four months before you travel. Depending on your destination, you may want to allow even longer and take advantage of newly opened flights.

  • Make the Most of Hotel and Food Discounts: We live in a world where online discounting and virtual vouchers are widely available, especially in the travel and tourism market. So, if you’re going to allow yourself enough time to plan your trip, you should use some of this to check for relevant discounts on hotels and flights. We’d also recommend liaising with hoteliers directly, as you may be able to access further discounts by creating rapport and using other offers as leverage.


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