Is “Fun-Flation” Keeping Prices High?

Unexpected Spending

After a full year of surging prices, you might think most consumers would be reigning in their discretionary spending. After all, prices for staple goods like groceries, gas, and rent have all increased substantially over the past few years.

Instead of spending less, many Americans seem to be doing just the opposite: spending freely on fun experiences like nights out, trips around the country, or concert tickets.

All this spending could be keeping prices higher-than-normal. If it persists, this so-called “fun-flation” could even contribute to the Federal Reserve maintaining its hawkish stance.

Summer of Splurging

After two years of lockdowns, Americans aren’t letting higher prices deter them from having fun.

This phenomenon — referred to as “revenge spending” — is likely the result of the lockdowns throughout 2020 and 2021, which forced people to put experiential spending on pause. People are now swiping their cards first and asking questions later to make up for lost time.

Consumers are splurging on everything from classy dinners, airfare, and expensive concert tickets. But it’s not only their bills that are on the rise. In one peculiar example, hotel prices are soaring in cities where Taylor Swift performs. So the price of seeing T-Swift is no longer just $1000 for nosebleed seats — it’s higher costs across the board for you, and everyone in your vicinity.

Looking Ahead

For investors, the impact “fun-flation” could have on central bank policy is notable.

Revenge spending may be causing prices to stay artificially high. It’s still unclear if this is a short or long-term trend. Although inflation has been coming down — finally hitting 4.0% in May — it’s still nearly double the Fed’s target rate. If prices don’t come down, the Federal Reserve may consider continuing to raise borrowing costs until it achieves its goal of 2% inflation.

For fun seekers, the question remains, “Is this experience worth the price tag?” It’s just that now the elevated costs might go beyond Ticketmaster (LYV) hidden fees. They might include your food, accommodations, and perhaps even interest rates.

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