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Footnote: CPI indexes related to travel bear watching

There was just a hint that the wave of travel cancellations had an impact on consumer prices in the February CPI data. In the short term, cancellations are mainly going to impact revenues for venues, hotels, restaurants, and other services that depend on business and personal travel. Some of that will be made up in cancellation fees for contracted facilities, meals, and services. While some may be made up when events are rescheduled, a lot is going to be lost and not recoverable.

What is the problem now is how to coax business and personal travel at a time when common sense dictates eliminating unnecessary travel and avoidance of situations in confined spaces and/or with large numbers of people. That means that where possible, providers of services are going to have to offer steep discounts and generous promotions to fill empty rooms and facilities, get people into restaurants, and make commercial transportation costs tempting enough to risk exposure.

There’s a hint of this in the 0.3% dip in airline ticket costs in February from January. However, these prices are prone to follow fuel costs, and these were down substantially month-over-month. The EIA price per gallon of kerosene-type jet fuel was $1.522 on average in February, down from $1.777 in January. Still, it does reflect the broadly downward trend for airline fares since quarantines in China began to cut into global travel in late 2019. The price may not go up even with the approach of summer vacation time.

What is perhaps more indicative of the impact of the spread of the disease in the US is the decline in recreation services which includes event venues. The 0.5% decline in February suggested that prices were starting to come down in order to try to make up for a lack of new bookings and previous contracts that were cancelled or postponed leaving a hole in the schedule.

If so, this also means that venues will not be able to charge as much and therefore will be less profitable even when in use. It may be that vacationers in the US are going to have incentives to travel again if the coronavirsus spread retreats during the summer months, but it does not change that in short term, hospitality and leisure is facing a sectoral downturn of some severity. Even those individually these are a small part of the basket of goods for the CPI, collectively their presence could keep inflation in check just when the FOMC was seeing signs of a mild pick up closer to the 2% symmetric target.




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