Expensive travel

From Challenger Chief Economist Dr Jonathan Kearns

? Continuing on from last week’s CPI release, one spending category that has seen very high inflation is holiday travel and accommodation, with the inflation rate for the domestic component peaking at 25% and for the international component peaking at an astonishing 38% in March this year. While the prices are no longer increasing at these eye-watering rates, the price of travel remains very high relative to before the pandemic.

? The amount of flying we are doing remains below pre-pandemic levels likely reflecting some reduction in demand given ‘zoom’ meetings, but also a reduction in the number of flights. So there is the potential for increases in supply to the pre-pandemic number of flights to result in some fall in prices, helping the return of inflation to the RBA’s target.

? One thing the pandemic did achieve is reverse the decades long increase in the cost of business class travel relative to travelling up the back of the plane. The previous fall in the relative cost of business class travel occurred from 2011, following the Global Financial Crisis. It seems a good crisis is needed to stop business travel and reduce the relative cost of travelling up front.

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