The Impact of Inflation on the Tourism Sector: A Research Report

This report, prepared as part of a Foundation Year Research Project (MGBBT0FYP), investigates the impact of inflation on the tourism sector, specifically focusing on small and medium-sized enterprises (SMEs) and a case study of Verdant Leisure. The report begins with an introduction to inflation and its effects, followed by an analysis of the types of data used to identify inflation, such as the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE). It presents data illustrating the impact of inflation on the tourism sector, highlighting challenges such as reduced purchasing power and recruitment difficulties. The report then explores both the positive and negative impacts of inflation on the sector and proposes solutions for mitigating its negative effects, including streamlining public-private interfaces and ensuring transparent communication. The conclusion summarizes the findings, emphasizing the significant influence of inflation on the tourism industry and the importance of proactive measures to address its consequences. The report utilizes various sources to support its claims and provides a comprehensive overview of the subject matter.

Foundation Year
Research Project
MGBBT0FYP
Table of Contents
INTRODUCTION...........................................................................................................................3

MAIN BODY...................................................................................................................................3
Explanation of types of data which are used for identifying that inflation is happening............4
Data presenting the impact of inflation on tourism SMEs..........................................................4
Positive and negative impact on the tourism sector....................................................................6
Solutions for eliminating the impact of inflation on tourism sector...........................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Inflation is defined as the increase in the prices which decreases the buying power of the
customers over time. It is the rate at which the purchasing power of the customers dropped, but
the average price of the selected goods increases. Inflation is in direct comparison with deflation,
where the prices of the goods and services decreases and the buying power of the customers
increases. Inflation is aiming at measuring all the changes which are affecting the overall
economy of the country. It is seen that inflation has rose after the rise of the COVID-19
pandemic, which had affected the supply and demand of the goods and services. The companies
are not able to meet the demands of the customers due to the increase in the prices (Khan and et.
al., 2022). It is evaluated that in November 2021, the inflation rate of the durable goods is 14.9%,
whereas the rate of consumable goods is 10.7% and for the services sector the it is 3.8% in
United Kingdom. Due to the shortage of the goods in UK their was a hike in the inflation rates,
which had created problems within the international supply chain. This report is about Verdant
Leisure, it is a private firm which is offering holiday homes to their customers. The company is
the customization of the holiday park which is offering ownership of the self- catering holiday
homes. The company is headquartered in Lanchester and was established in September 2010.
This report will give the description about the implications of inflation which have affected the
tourism sector. Further the report describes about the solutions which will help in easing the
negative affects of inflation which can be reduced by proper evaluation.
MAIN BODY
AIMS
 The main aim is to analyse the impact of inflation on the tourism industry.
RESEARCH OBJECTIVES
 Evaluation of the concept of the inflation
 Identification of the relationship between the inflation and tourism industry.
 Explanation of the types of data which are used for distinguishing if the inflation is
happening or not
 Solutions which are used for easing the negative affects of inflation on tourism sector

Explanation of types of data which are used for identifying that inflation is happening
Inflation is used for measuring all the aspects of the economy, which involves business
investment, consumer spending and tax rates. Measurement techniques used to identify inflation
are described below-
 Consumer Price Index- Consumer price index helps in measuring the changes which are
happening in the prices of the commodities. It is most used indicator used to measure
inflation, and the change in the percentage of the prices of the goods and services which
are utilized by the household. CPI is measured in UK by the Central Administration and
are promulgated once in a quarter (McNally and Maroun, 2018). For calculating the CPI,
it is important to analyse the prices of thousand of goods which are later grouped in 87
categories and eleven groups. Every quarter, the change in the prices of the commodities
are evaluated in comparison with the previous quarter and is summed up for the whole
CPI basket.
 Personal Consumption Expenditure(PCE)- It helps in measuring the personal
consumption of the consumers. The PCE is calculated by the Economic Bureau which
also calculates Gross Domestic Product. The information used by the Personal
Consumption Expenditure is same which has been collected by the Consumer Price Index
but they put them in a different way. With the help of Personal Consumption Expenditure
the rate of inflation is calculated by adding the prices of the commodities in the service
basket and goods, which helps in comparing the total CPI of the previous month.
 Inflation Base year- The base year is set at the level of 100, through which the
comparison is made between different years. The new base years are continuously
introduced so that the data which is introduced is specific. The data analysts are likely to
choose the recent years to serve as the base years.
Data presenting the impact of inflation on tourism SMEs
The demand in the tourism sector is affected by the high inflation rates in the companies.
The global tourism is said to be highly sensitized in respect of the changes made internally and
externally in the tourism sector. The consequences of the inflationary tourism may rise in several
different ways. The retailers in the tourism industry are efficient in raising the prices of the
commodities in the market. The inflation is caused in tourist's destinations with the change in the
prices of the land, the tourism industry is generating more demand for the land. The extent at

which the inflation price increases are likely to be compensated by the domestic residents which
can likely benefit the employment rate and uncertain income.
A survey in April month has found that half of the UK consumers are willingly sacrificing their
spending on the grocery delivery through which they can finance their next holiday trip. A
survey conducted had shown the difficulties which are facing concerns by the SMEs of the UK.
The small businesses in the UK are likely to struggle with the range of personnel issues. It is
seen that COVID-19 pandemic had created personnel issues which face external challenges with
the help of inflationary pressures. The four key areas are highlighted below-
Cost of living crisis in destroying budgets- Many people that are running the small businesses
are in problem with the high cost that the inflation is bringing in. Not only that but the issues that
are globally present that are related to the finances could also be a problem to them. More than
ninety percent people said that the cost of running these businesses are too much in consideration
to their style of living.
Challenges in recruitment continue to take heavy toll- Verdant faced lots of issues while
dealing with the recruitment processes that included the salary issues and the interview processes
(Ozdemir, Ar and Erol, 2020). Another issue that has been a dilemma for them is the resigning of
many employees from the company just after joining the company.
Attrition of staff is fuelling the concerns and wage inflation- The company is facing lot of
challenges while dealing with the retirements and the problems that involves in covering up the
vacancies. Retirement is one issue that has been an issue for the company.
Hybrid work continues – Almost many decision makers are formulating the strategies to work
out the hybrid phase plan and make the employees come out of it. The factors like equity and
diversity are not a preference for many of the small businesses.
In the year 2022 the living cost that is present now have pushed the inflation to a bare
maximum and the prices are now fluctuating at even higher rates than before. It has hit 10.1% in
last year and almost 9.4% within a month, as reported from various sources. The high cost of
living is affecting the normal people with the price moving faster than the salaries. As reported
by the Bank of England the rate could even go up to thirteen percent this year. The cost of
energy, and diesel are contributing majorly in inflation. The non- alcoholic and the food

beverages are biggest contributors in the inflation prices in the July as per the ONS. It is seen
that the price of the cereals, breads, milk and eggs are inflating very fast whereas the the prices
of the vegetables, chocolate and meat were the highest in the economy. The prices of the other
foods, toilet rolls and the tickets of railways are increasing with the time (Pencarelli, 2020). The
cost of transport facilities is the another contributing factor as with the rise of the air tickets the
customers are less likely to travel. Thus the tourism sector is affected a lot with the changing
rates of the transport tickets.
Positive and negative impact on the tourism sector
Negative
 Erodes the power of purchasing- The main effect of the inflation on the Verdant
Leisure is the decrease in the consumer's purchasing power which will effect the
consumption from the consumers .
 Hurts poor’s disproportionately- The consumers which are having less income and are
likely to spend their major part of income on necessary things are compared with the high
income and are having less cushion for the purchasing power.
Positive
 Low debt cost of service- The new customers have to face high interest rates when there
is a rise in the inflation rates and the mortgage fixed rates.
Solutions for eliminating the impact of inflation on tourism sector
Several ways which are used by the government in easing the inflation in the tourism sector-
 Streamline the public and private interface by tourism nerve centre- Before the
pandemic the tourism authorities are aiming on the destination advertising (Rashideh,
2020). With the focus on the leadership in the central system, there is a management
crisis which had caused deployment in many of the business organization.
 By ensuring the transparent and constant communication on protocols- International
authorities have made many new rules and regulations which are serving the baseline
(Rochon, 2022). Verdant Leisure have merged the policies which ensures effective
communication with the protocols.

CONCLUSION
From the above report it is concluded that inflation rates have become very high after the
rise of the COVID-19 pandemic, this had affected the tourism sector a lot. The firms which are
operating in tourism sector are affected as their businesses have suffered a lot in the great extent.
The government has taken various measures which had ease the negative impact of the inflation
on the business involved in the tourism sector.

REFERENCES
Books and Journals
Khan and et. al., 2022. Alternate energy sources and environmental quality: The impact of
inflation dynamics. Gondwana Research, 106, pp.51-63.
McNally, M.A. and Maroun, W., 2018. It is not always bad news: Illustrating the potential of
integrated reporting using a case study in the eco-tourism industry. Accounting,
Auditing & Accountability Journal.
Ozdemir, A.I., Ar, I.M. and Erol, I., 2020. Assessment of blockchain applications in travel and
tourism industry. Quality & Quantity, 54(5), pp.1549-1563.
Pencarelli, T., 2020. The digital revolution in the travel and tourism industry. Information
Technology & Tourism, 22(3), pp.455-476.
Rashideh, W., 2020. Blockchain technology framework: current and future perspectives for the
tourism industry. Tourism Management, 80, p.104125.
Rochon, L.P., 2022. The general ineffectiveness of monetary policy or the weaponization of
inflation. In The Future of Central Banking (pp. 20-36). Edward Elgar Publishing.

APPENDIX
GANNT CHART OF PROJECT