Inflation and Its Effects on Tourism: A Comprehensive Analysis

This research project investigates the multifaceted impact of inflation on the tourism industry. The introduction defines inflation, its causes, and its specific effects on the tourism sector, highlighting its rapid growth and vulnerability to economic changes. The main body presents statistical data and graphs illustrating the rising inflation rate and its impact on SMEs, alongside examples of both positive and negative effects on the tourism industry. Quantitative and qualitative research methods are employed to analyze government reports, industry data, and expert perspectives. The project aims to identify the challenges posed by inflation, such as rising costs and decreased consumer spending, while also exploring potential benefits like increased revenue during price surges. The conclusion summarizes the findings, offering practical solutions for tourism businesses to mitigate the negative impacts of inflation, such as strategic resource management, market research, and strong supplier relationships, to ensure the sector's resilience and sustainability. This assignment is contributed by a student and is available on Desklib.

Research project

Table of Contents
INTRODUCTION...........................................................................................................................1
MAINBODY....................................................................................................................................4
Statistics which are utilised to determine the inflation is occurring along with the data which
shows the measured effect the inflation has had on SME’s...................................................4
The positive as well as the negative effect that the inflation can have on the tourism industry
................................................................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Inflation has been determining as the rise in the prices of all product and services among
the period of time. In broad term the increase in the prices of the commodities which leads to
enhance the living cost of people in country (Bradshaw, 2022). It has been seen that the tourism
industry is fastest growing industry in recent times addition to the inflation has great impact on
it. Inflation refers to the phase in that rates of all goods and services increasing with certain rate
which leads to decline in the value of currency and purchasing power of the people. Many events
that can be the cause of inflation like interest rate, change in global events, increased money
supply as many more. It can be understood as the inflation has the high influence of demand
along with the supply of the product and services along with the economy of nation (Ghosh,
2019).
This project highlights the meaning of inflation along with how it can occur among the
economy of the country. Further, it covers the reliable data and statistics of the influence of the
inflation has in recent years. Along with the evidence of both negative and positive impact of the
inflation on tourism industry. At last, it covers the conclusion with solution which the tourism
industry can utilise to eliminate the negative influence of inflation.
Aim
Aim of the project I to identified the influence of inflation on tourism industry of nation.
Objectives
 To identify the negative as well as positive impact of inflation on SMEs of tourism
industry
 To examine and determine the solutions that the tourism sector can use in order to
mitigate the negative impact of inflation
1

2

3

MAINBODY
Statistics which are utilised to determine the inflation is occurring along with the data which
shows the measured effect the inflation has had on SME’s
For this project the researcher conduct quantitative research by collected the numerical data and
stats for the government report, news, industry data and so on that mentioned below-
Figure 1What is the UK inflation rate and why is the cost of living rising?, 2022
(Source: What is the UK inflation rate and why is the cost of living rising?, 2022)
In the presented graph it has been clearly seen that from the past 10 years the inflation rate is rise
by the 9.9% along with the cost of the living of the people is also increasing. Due to the various
reasons such as lack of resources, natural uncertainty and change in economy condition the price
of the good and services increased (Hadi, Irani, and Gökmenoğlu, 2022). The inflation is arising
because of rise in the price of fuel, oil, energy, natural resources, and so on that the nation is
imported and exported from other nations. In recent time the main reason is the COVID 19 along
with the clashes with other nations for that the government of the country introduced various
restriction, rules and regulation such as entry ban, travel restriction along with lock Down to
close down the stores or business for some times. After that the bank and finance minister of the
nation decided to increase the price of loan, resources, employment rate, house hold items, gases,
4

transport, hotel stay, electricity and many more which leads to increase in inflation and prices of
the goods and services (Icoz, and Icoz, 2019).
.
Figure 2Inflation in Britain Jumps to 10.1 Percent, Pushed Higher by Food Prices, 2022
It has been analysing from the above presented graph, the inflation rate and prices is rise by
10.1% in the hospitality and tourism industry. because of the enhancing the demand of product
and services along with change in the polices of the government related to the business
operations of SMEs in tourism industry (Melolinna and Tóth, 2019). It is clearly seen that the
inflation affected the tourism industry in UK along the rise in the price of goods and services like
food items, travel, transportation prices, accommodation and entertainment. The firms in this
sector has to invest in multiple activities like installing scanning machines, sanitizers, PP kits,
following guidelines of social distancing and many more. as the result of this the operation cost
of the company which leads to increase in the price of good and services along with occurring
inflation (Moghal. and O'Connell, 2018).
.
The positive as well as the negative effect that the inflation can have on the tourism industry
To determine the positive and negative impact of the inflation on the tourism sector the
researcher conduct qualitative research by using the information identified related to the topic.
All the information helps them to develop their understanding and knowledge about the view
point of people regarding the inflation (Rae, 2022).
5

According to the perspective of butler (2022) inflation has both negative along with positive
impact on the organisation of tourism industry. The researcher first identified the positive
influence on the SME like if the prices of the product and services is rise suddenly then the firm
sell their produced items at higher prices than before which leads to increase their profit, revenue
along with sales. such as during the time of production the price of the inputs in less but after
some time the inflation is arises due to some economic reasons (Salisu, Ndako and Oloko,
2019). The entrepreneur also sells it at low price as compare to their competitors which help
them to attract large number of customers and increase their brand value in the country. The
inflation is occurred when the demand of the goods and services is increased and the production
is less which leads to rise in price of goods. In order to meet the requirement of the people the
entrepreneur hire more employees and try to develop in new innovation that leads to increase in
employment, economy and new technology in the country. Further, they save their profit for the
future development and investment in the productive project in order to gain competitive
advantage over competitors. New talent helps the company to increase their productivity along
with produce unique product and services in order to maximise their customer base, market share
(Sikarwar, 2021).
With the positive impact, the inflation has the negative impact also such as during the
time of it the customers stop their spending on the unnecessary items like their vacation, dinner
to meet their social needs. As the price of the commodity is high then the consumer start saving
for spend the money in future when the price goes down. As the result of this, the profitability
and sales of the Tourism company is decline and increase their cost to retain the resources. Due
the COVID-19, the price of the raw material is increase which leads to the production cost is
increase along with profit of the company is reduce (Zaremba, Umar and Mikutowski, 2019). It
also affects the other function in the organisation such as supply chain, marketing, inequality
which create problems in company that also decline the productivity or performance. Due to high
cost it automatically leads the high prices which unable public to buy product at higher prices
which they buy in less price. the demand of the product and services is decline for that reasons
many company suffer from huge loss and take decision to close down their business
permanently.
6

CONCLUSION
From the above presented information, it has been concluded that inflation has high
influence on the income, price, sale along with revenue of the tourism organisation. To mitigate
the negative influence of inflation in industry, the top management of the Small and medium
organisation must make the plan in advance in order to deal with the situation in future. They
must keep their resources safe by using it optimisable manner in their production. The
professionals of the company must conduct research in frequent manner related to the market
condition, customer taste, availability of the resources and environment condition to store raw
material in their warehouses in order to reduce their production cost and sale their product at low
price in the market. addition to they make strong connection with suppliers to get input at less
price during the time of inflation in order to meet the demand of people to increase their
customer base. By motivating their staff in order to increase productivity through less waste,
innovative ideas and coordination to offer product at same price . By saving money and make
effective budget they save more fund to buy raw material in inflation to order to complete their
production and business cycle.
7

REFERENCES
8

Books and journal
Bradshaw, J.R., 2022. Impact of inflation on low-income households in the UK.
Ghosh, S., 2019. Uncertainty, economic growth its impact on tourism, some country
experiences. Asia Pacific Journal of Tourism Research, 24(1), pp.83-107.
Hadi, D.M., Irani, F. and Gökmenoğlu, K.K., 2022. External determinants of the stock price
performance of tourism, travel, and leisure firms: evidence from the United States. International
Journal of Hospitality & Tourism Administration, 23(4), pp.679-695.
Icoz, O. and Icoz, O., 2019. Economic impacts of tourism. In The Routledge Handbook of
Tourism Impacts (pp. 95-108). Routledge.
Melolinna, M. and Tóth, M., 2019. Output gaps, inflation and financial cycles in the
UK. Empirical Economics, 56(3), pp.1039-1070.
Moghal, Z. and O'Connell, E., 2018. Multiple stressors impacting a small island tourism
destination-community: A nested vulnerability assessment of Oistins, Barbados. Tourism
management perspectives, 26, pp.78-88.
Rae, M., 2022. Protection From Inflation: Examining UK Inflation Measures. In SAGE Business
Cases. SAGE Publications: SAGE Business Cases Originals.
Salisu, A.A., Ndako, U.B. and Oloko, T.F., 2019. Assessing the inflation hedging of gold and
palladium in OECD countries. Resources Policy, 62, pp.357-377.
Sikarwar, E., 2021. Time-varying foreign currency risk of world tourism industry: effects of
COVID-19. Current Issues in Tourism, 24(7), pp.887-891.
Zaremba, A., Umar, Z. and Mikutowski, M., 2019. Inflation hedging with commodities: A
wavelet analysis of seven centuries worth of data. Economics Letters, 181, pp.90-94.
9