What Is Causing Inflation and How Does It Affect Your Vacation?


If the year 2022 had one theme, it would be inflation. It is pervasive, and prices are much higher for many items. The cost of filling your car with gasoline is higher. But inflation is also making your vacations more expensive. The question is what is causing inflation and what you can do about it to save money when you travel in 2023.

Inflation is the highest in four decades. One must go back to the early 1980s for a time when inflation was more elevated, and prices rose at a faster rate. Many young adults don’t remember a time of high inflation because it has been low for many years. That fact, combined with other forces like deregulation and increasing global competition, has kept prices relatively low for years, at least until 2021. Since then, travel costs have been rising for various reasons.

Overall, factors outside of your control are causing inflation to rise, and in turn, it is making the cost of your vacation to Jamaica or other places soar compared to 2021.

What Is Inflation

The simple definition of inflation is the rate of price increases over time, causing a loss of purchasing power and increased living costs. For example, the average price of one gallon of whole milk was $3.04 in 2019. By 2021, the average price had risen to $3.55 per gallon. The $0.51 difference and approximately 16.8% increase result from inflation. Because your wages probably did not increase as fast, you lost buying power, and your cost of living increased.

Inflation is usually reported as an index value relative to the past year affecting an entire country’s economy. In the United States, it is measured by the Consumer Price Index (CPI) or Personal Consumption Expenditures (PCE) Price Index. The United States government reports both values monthly.

Causes of Inflation

Now that you know the meaning of inflation, we need to know what is causing inflation. Prices usually go up over time, but they can fluctuate and even come down depending on supply and demand. Again, the concept is relatively simple.

First, if demand exceeds production, the price goes up. For instance, during the COVID-19 pandemic, consumers started buying used cars, and prices rose because the supply of used vehicles was limited.

Next, inflation rises if production costs rise and are passed on to the consumer. This often occurs for packaged food items, like breakfast cereals. For example, if the cost of wheat and rice rises along with labor, cereal prices rise because it costs more to make it.

Lastly, if prices increase, workers demand higher salaries to maintain living standards, and again, inflation increases. We are observing this today as railway workers demand higher pay in the face of the rising cost of living.

The causes of inflation are more complicated because governments and other factors can influence it. Central banks sometimes increase the money supply in response to recessions or shocks to economic systems. The U.S. Federal Reserve did this during the subprime mortgage crisis and the COVID-19 pandemic. Some governments devalue currency making debt cheaper but driving up the cost of basic necessities. Lastly, governments and banks can buy bonds and, in effect, add money to the economy.

How Does Inflation Affect Your Vacation

But how does inflation directly affect your vacation and travel plans? The bottom line is it is making almost everything more expensive, adding to your costs and making it tough to plan ahead and budget. So let’s examine the five main categories in a vacation: airline tickets, lodging, rental cars, restaurant prices, and entertainment.

Airline Ticket Prices

Airfares plummeted when the coronavirus spread in the spring of 2020 and stayed low until the end of 2021. When the United States economy started to open, prices began to rise because of surging demand constrained by supply. Airlines had parked unused airplanes, and pilots and staff were furloughed. The combination of increasing demand and limited available seats on many routes caused prices to rise. Moreover, sky-high jet fuel prices added to the pain. Average airfare prices are up 9% from November 2019 and 36% from November 2021.

Americans’ appetite for travel shows little sign of abating. According to the CPI for airline fares, spending at airlines and travel agencies continues to outpace other expenditures.

Lodging Costs

Hotel and motel prices are higher today than one year ago or pre-pandemic. Similar to airfares, lodging costs plunged when the pandemic spread worldwide. By December 2020, prices were at a decade’s low. But once the U.S. economy opened up again, travelers returned, and hotel prices rocketed upward, hitting a record in May 2022.

Hotel and motel costs have abated since then, but they are still more than before the pandemic. They are up 13% from November 2019 and 3% from November 2021. But even though prices are coming down, lodging is still expensive.

Car Rental Prices

One of the main stories about the pandemic is expensive car rentals. Demand is far outstripping supply because companies have difficulty buying new cars from their fleet. Auto manufacturers are faced with high costs and supply constraints reducing output. Also, rental companies sold parts of their fleet because used fleet car prices were as much as 50% higher than in 2019. The combination of fewer cars to rent, high demand, and gas prices averaging more than $5 per gallon punished travelers.

Rental prices are coming down now because of more supply. But they are still 42% higher than in November 2019.

Dining Out Is Costly

Food is more expensive at home and away from home. The pandemic disrupted normal food production and supply chains. Also, people changed their habits when it came to eating at home or dining out. Furthermore, rising labor and other input costs have dented restaurant margins. The combination has caused food away-from-home prices to increase noticeably. That said, demand is only growing. Prices are up 19% from November 2019 and 8% from November 2021.

Entertainment Is More Expensive

Entertainment costs tend to increase annually. Movies, concerts, theaters, and the like are pricier each year. Prices dipped slightly in 2020 during the height of the pandemic, but they have been on an upward trend since. For example, according to the site Cheapism, the cost of a daily pass at Disney World was $109 to $159 from 2019 to 2021. It is now $124 to $189 for the Magic Kingdom.

Movie, theater, and concert prices are up 13% from November 2019 and 7% from November 2021.

How To Save Money if You Are Planning To Travel

Prices are higher, and everyone’s budgets are stretched. So how can you save money if you plan to travel in 2023? Below are several ideas to make your dollar go further with some planning.

Use Frequent Flyer Miles and Credit Card Points

Airfares will likely stay high as airlines try to remain profitable. But there are simple ways to save money, like using frequent flyer miles or credit card points. Both are easy to accrue over time, and they often sit unused. But inflation affects them too because airlines periodically increase the amount required for a free ticket.

Redeeming those unused miles or points is a sure way to slow the effect of inflation on your vacation and keep some more of your hard-earned dollars in your purse. In addition, most airlines allow booking with a credit card or using miles or points, making it easy to know the savings.

Book Travel Strategically

Book your travel strategically and in advance. Booking flights at least a month in advance tends to be cheaper, but it is not a hard and fast rule. It’s fairly well-known that flying on Tuesdays, Wednesdays, or Saturdays is usually cheaper. Additionally, changing departure or arrival times to early morning, late at night, or a non-peak time may reduce your airfares. Most airline booking sites show multiple flights and days simultaneously, making it easy to lower costs if you are flexible.

Another option is to fly from a different airport. Some major metro areas, like New York City, Washington DC, or Los Angeles, have two or more airports. An expensive flight to a vacation destination may be cheaper at one airport than the other.

In the case of rental cars, you can book, cancel, and rebook if you find a better deal. They typically do not ask for payment upfront or have a cancellation fee. Your only cost is the time using this strategy.

The same concept applies to hotels, but they usually have a cancellation fee within a specific window.

Today, travel apps make this process easy and provide alerts when prices change.

Change Your Destination

An exciting option is to change your vacation destination from domestic to international taking advantage of the strong dollar. You will need to meet international travel’s vaccination requirements, but vacationing overseas is the least expensive in years. Rising interest rates have made the U.S. dollar exchange rate favorable versus the Euro and Great British pound, meaning your dollars will go much further.

Bottom Line

The bottom line is that travel will be more expensive in 2022 than in 2021 and before the pandemic. Persistent inflation is causing prices to rise faster than incomes, making it challenging to plan vacations. Inflation is coming down, but prices rarely reverse themselves. Travelers should plan on paying more in 2023, but there are approaches to lowering the cost of your next vacation.

This article originally appeared on Savoteur.

Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, Entrepreneur, FXMag, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 1.2% (98 out of over 8,252) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.