The inflation rate in Europe may increase due to the Olympics and Taylor Swift's concert, but UBS predicts that it will not negatively impact the wallets of local residents.

• UBS states that mega events, such as the Olympic Games and Taylor Swift's Eras Tour, can cause sudden demand shocks in local economies, which may seem to increase inflation.
• The local population may not experience an increase in cost of living due to these mega events.
• The Olympics in Paris have increased demand and prices in various sectors, including hotels and airlines.

The surge in prices due to the Olympic Games is unlikely to affect French consumers significantly.

The increase in demand for hotel rooms, airline tickets, and other goods and services due to mega events such as the Olympics or Taylor Swift's Eras tour may not be felt by most consumers, according to UBS.

The method used to calculate consumer price changes may not accurately reflect the actual changes in prices due to the distortion caused by spiking costs in industries related to tourism, such as hotels.

"According to Paul Donovan, chief economist at UBS Global Wealth Management, in a recent analyst note, the sudden demand shock caused by the Olympic Games or a Taylor Swift concert is more likely to be captured by the measurement method for these prices, resulting in an increase in consumer price inflation."

Hotel revenue in cities across the U.S. where Swift was performing increased with the Eras Tour.

In June, hotel prices in the U.K. rose, but Donovan speculated that the increase may have been due to a specific group of fans of Taylor Swift's music, as the Eras Tour took place at Wembley Stadium that month.

The tourists visiting Paris for the Olympics are not representative of French consumers, as stated by him.

A Parisian hotel boom?

Despite a 60% drop in occupancy rates at hotels in Paris at the start of July, hotel occupancy levels during the Olympics have increased compared to last year. However, it is predicted that bookings will decrease after the closing ceremony.

The hotel industry in the city has experienced significant year-over-year price increases. During the first week of this year's Games from July 28 to Aug. 3, CoStar found a 206% increase in weekly revenue per available room. This was due to a 17.4 percentage point increase in occupancy to 85.4% and a 143% increase in the average daily rate (ADR).

The tourist office in Paris anticipates an 86% occupancy rate from Aug. 5 to Sunday.

In addition to the significant price increase observed in other regions of France, CoStar reported that ADR in the Île-de-France area experienced an 83.4% growth in the week ended July 27 compared to the same period last year. Meanwhile, Paris occupancy decreased by 5.7 percentage points year over year, while ADR increased by 90.8%.

"According to the interview with CNBC, the average French person is not interested in staying in Paris at the moment, except for those who are insane or going to the Olympics. The majority of them are not affected by the increase in prices."

Olympic gains

The Games are attracting a significant number of tourists, with the Paris tourist office reporting 1.73 million visitors in Greater Paris during the first week, which is a 18.9% increase from 2023.

The number of international tourists in the city increased by 14% to 924,000, with the largest number of foreign visitors coming from the U.S. Additionally, French tourists saw a 25.1% increase to 803,000 from the previous year.

The Olympic and Paralympic Games are expected to attract a total of 15.3 million visitors, with 11.3 million for the Olympics and 4 million for the Paralympics.

The Paris 2024 Organizing Committee has sold or allocated a combined 10.6 million tickets for the Olympic and Paralympic Games, surpassing the previous record of 8.3 million sold or allocated by the 1996 Atlanta Games. Of these, at least 9.4 million tickets have been sold or allocated for the Olympics, and at least 1.2 million for the Paralympics.

"Donovan explained to CNBC that tourism not related to the Olympics experiences a sudden drop, which distinguishes it from the Eras Tour and other large-scale events. He stated that this is a demand shock, but it is narrowly focused, which creates a problem on the inflation side because it results in an intense period of extremely high demand. As a result, the pricing mechanism becomes unpredictable."

Despite some airlines predicting a decline in third-quarter revenue due to reduced traffic to Paris this summer, recent Visa data indicates that flight bookings to the city have increased by 39% in the lead-up to the Olympics compared to the same period last year.

Small businesses in the city experienced a 26% increase in year-over-year sales from Visa cardholders during the first weekend of the Games.

The long-term economic impact of the Paris Olympics is uncertain, but Donovan believes it will likely be positive, citing past Games that have led to tourism booms, such as Barcelona in 1992. He notes that if the Olympics are executed correctly, they can provide a significant boost.

The next two Summer Olympics could potentially generate even more economic value than Paris 2024, according to a recent study from the Centre for Law and Economics of Sport.

"The Olympic Games have a significant economic impact, as stated by Christophe Dubi, the executive director. This impact is a result of the influx of resources into the local economy, which has a lasting effect."

Victor Matheson, an economist and professor at the College of the Holy Cross, claims that the IOC's Agenda 2020 reforms have made events more sustainable economically.

The upcoming Summer Games are projected to cost under $10 billion, marking a "turning point" for the Olympic movement, according to Matheson. This was achieved through the use of 95% preexisting or temporary venues, resulting in significant cost savings.

""Paris's Olympics won't feature billion-dollar monuments or gold-plated everything, as the IOC has allowed, which can drive up costs quickly, but they don't seem to be pushing that," he said."

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.