MGBBT0FYP Research Project: A Study of Inflation Impact on Tourism

This research project provides a detailed analysis of inflation and its impact on the tourism industry. It begins with an introduction to inflation, explaining its causes and measurement using the Consumer Price Index (CPI). The report then presents reliable statistics on the impact of inflation in recent years, including its effects on consumer prices, SMEs, and international trade. It explores both the positive and negative impacts of inflation on the tourism sector, such as increased employment versus reduced purchasing power. The report concludes by suggesting solutions for tourism companies to mitigate the negative effects of inflation, such as price controls, wage management, and diversified investments. The research uses government statistics and references various books and journals to support its findings.

Research Project

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Reliable statistics of the impact inflation has had in recent years..........................................3
Provide evidence of both the negative and positive impacts of inflation...............................4
CONCLUSION................................................................................................................................6
REFERENCES:...............................................................................................................................8
Books and Journals.................................................................................................................8
Online.....................................................................................................................................8

INTRODUCTION
A detailed study is required for analysing specific area or topic of concern. It can
effectively identify different aspects which can be used by individuals to enhance their
knowledge. This report will discuss about inflation which refers to the increase of rates and
prices of services and products. It is not measured on individual basis rather collective basis is
used to measure the inflation which includes different products and services. Overall prices are
increased in the economy which indirectly or directly affect the buying behaviour of citizens.
The main reason of inflation is increase in the prices of wages and raw material which directly
affect the cost of production. The increased demand of some of products and services can results
in inflation as customers tend to pay higher prices willingly in order to buy them. Consumer
price index (CPI) is highly popular method used to measure the rate of inflation. Some of the
global events such as crises and lack of resources also contributes in the inflation which leads to
increase the rate of products. Sometime it also affect the profitability rate as consumers have
fixed budget for availing that particular product or service. Another causes of inflation includes
several reasons such as policy and regulations, cost push inflation, demand pull inflation,
devaluation, increased money supply, rising wages, etc. the growth of economy is affected due to
the inflation as organisations experience lower sales on regular basis. The purchasing power of
buyers is essential factor in the growth of several businesses which are highly affected in
negative and positive ways. This report will discuss about inflation and different events which
are responsible for them in an economy. The reliable statistics are used which shows the impact
of inflation in recent years. Negative and positive impacts of inflation are also discussed in this
report. Solutions are provided in this report how tourism industry can reduce the negative impact
of inflation.
MAIN BODY
Reliable statistics of the impact inflation has had in recent years.
Inflation impacts the economy in different ways which can be measured using several
methods. It raises prices of valuable things which disturbs the rate of sale and profitability. It
lower down the value of savings, pensions, treasury notes, etc. which should be focused by
individuals. The surge in demands directly create great impact on the product cost which makes

products and services costly. Annual inflation rate edged lower in UK to 9.9% in August 2022 in
comparison with July which was 10.1%. it affects the motor fuel prices which highly contributes
in the development of economy. The consumer price index which involves owner occupier's
housing cost directly rises by 8.8% in July 2022 from June 2022 which was 8.2%. Small and
medium enterprises affected highly due to inflation as their profitability tends to lower down. It
decreases the ability of consumers or buyers to invest in small businesses. According to the data
of National Statistical Office (NSO), the operating cost is increased by 19.5% which is measured
by consumer price index. The wholesale price index is also measured which is increased to
13.11%. the manufacturing enterprises face different challenges due to increase in the cost of raw
material and equipments. They have to pay higher wages to their labour which contributes in the
inflation.
Inflation affects the export and import of different products and goods from other
countries. It involves higher cost and capital which becomes barrier for various organisations.
Small and medium enterprises have to develop various rules regarding their operations which
involves necessary steps that can lower down the negative impact of inflation. Different pricing
strategies help them in overcoming the impact of inflation so that small businesses can grow and
expand their operations. Some of the factors which affect the production procedures includes
transportation cost, fuel prices, labour cost, etc. Higher inflation affect the supply chain
management procedure of an organisation which plays important role in revenue generation.
Provide evidence of both the negative and positive impacts of inflation.
Positive Impact
In context to Tourism Industry, the high inflation is basically considered as the important
factor which affects the tourism sector in developing continents and tourism demand. When the
inflationary prices increase it tends to provide various benefits such as increased employment.
Due to inflation, high economic growth caused by Tourism can basically implies a lower rate of
unemployment which can generally lead to contributing to a larger consumption of services and
goods which causes a higher aggregate demand. With the support of high inflation, it is
considered to be a important factor which could affect the demand of tourism and the tourism
sector in the developing countries. In case of International Tourism, it is highly susceptible to
changes external and internal to the industry. As a part of Inflation, the fares of airline climbed
by 10.7 percent on a monthly basis and approximately 24 percent over the last year.

Negative Impact
In case of Inflation, the overall increase in the prices over time generally reduces the
consumers and their purchasing power due to a fixed amount of money will afford progressively
less consumption. In context to Tourism Industry, inflation is basically caused due to land values
with tourism generating additional demand for the land. Due to inflation, it results in increasing
the price of houses, land, food that basically occurs as a result of tourism. Also the prices for
commodities can increase when the tourist places extra demands on the local services at a
tourism destination. With reference to Inflation, an inflationary environment could result in
reducing the purchasing power of some consumers. Due to inflation, it can also distort the
purchasing power over time for the payers and recipients of fixed interest rates. Also the most
crucial and the negative impact of inflation is that it is becoming one of the major cause of
distress among business travellers and leisure travellers. Not only that, it causes the purchasing
power of a currency to decline and also making a representative basket of services and goods
increasingly more expensive.

CONCLUSION
From the above report it can be concluded that inflation plays important role in
development of country in positive manner. It is responsible for rising the prices of products and
services due to several reasons such as interest cost and different global crises. Sometimes
country is highly affected due to natural disasters such as flood and drought which increases the
demand of products and services and lower down the supply. The cost of production becomes
costly due to increase of raw material and equipments used during production and
manufacturing. There are various steps which are taken by government and organisations in
order to overcome the negative impacts of inflation. Government can use price control which
suggest government specify fixed prices on some of the essential goods and products. Price cap
is used to maintain the appropriate level of supply and demand which becomes beneficial for
both businesses as well for customers. Organisations can control the wage rate which directly
contribute and control wage push inflation. They can use contractionary monetary policy which
is highly popular method for controlling inflation in an economy. The main goal of this policy is
to reduce the money supply by directly increasing interest rates. Higher interest rates imposed on
government securities results in slow growth by investors who invest in treasuries and
incentivize banks. Reserve requirements are also implied by government which ensures the
proper money supply. Banks have to legally held money back to them so that they can utilise it
in future rather then lending to the customers.
Some of the tourism companies like British Airways, Expedia, Booking.com, Virgin
holidays, etc. maintains reserves of funds. They focus on serving their customers in appropriate
manner so that they can maintain longer sustainability. The every day expense are negotiated in
these organisations so that they can lower down excessive cost. Reports can be maintained by
those tourism organisations which include cell phone plans, cable bills, streaming services, gym
memberships and insurance premiums, etc. Big ticket purchases are postponed by some of the
organisations like British Airways as they believes in providing services in best possible lower
prices. They diversify their investment so that they can survive in the longer run without any
difficulties. Diversification becomes key which easily fight back with the impact of the inflation.
The idea of rebalancing investments assist tourism industry in managing their financial budget in
appropriate manner. For example, Expedia uses digital wallets in their operations which is

simple to handle. It can easily provide number of opportunity for future investments and lower
the negative impact of inflation.
This report discussed about the inflation and the responsible events which cause inflation
in an economy. Different relevant statistics are used from the past recent years which provides
better idea of inflation. Different government statistics are used so that actual position of
inflation. Evidences are provided of both positive and negative impact of inflation in this report.
Various solutions are given which help tourism industry to overcome the negative impact of
inflation.

REFERENCES:
Books and Journals
Bawonga, R., 2021. Macroeconomic analysis of the impact of inflation rate on the economic
growth of Uganda (1980-2019) (Doctoral dissertation, Makerere University).
Ehigiamusoe, K.U., Lean, H.H. and Lee, C.C., 2019. Moderating effect of inflation on the
finance–growth nexus: insights from West African countries. Empirical
Economics, 57(2), pp.399-422.
Fathizadeh, H., Piraiee, K. and Asadi, E., 2019. The Impact Of Inflation In Iran’S Trade Partners
On Inflation Uncertainty In Iran: Garch Models Approach.
Kim, S. and Mehrotra, A., 2018. Effects of monetary and macroprudential policies—evidence
from four inflation targeting economies. Journal of Money, Credit and Banking, 50(5),
pp.967-992.
Maged and et.al., 2019. Impact of inflation on stock market performance.
Saifullah, M.K., 2020. Critical evaluation of impact of inflation on Pakistan fashion industry.
Saymeh, A.A.F., Orabi, M.M.A. and Aldhourah, A.A., 2021. The Impact of Inflation Prospects
on Investments of Industrial Companies (Jordan’case). WSEAS Transactions on
Business and Economics, 18, pp.916-928.
Online
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