Taylor Swift’s Inflation effect

Posted by Gavin Chau

As a man who just turned 46, I’m completely out of touch with pop culture – especially since I never followed it in the first place. What brought this to my attention is the potential inflationary impact of a tour like this in Australia. But first things first, like so many other things, I have struggled to understand what makes Taylor Swift arguably the biggest pop star of this generation. There have been many singers who can hold a note and write songs, and Swift’s music mostly consists of simple chords that aren’t harmonically interesting. She purportedly uses the same chord progression on 21 different occasions.

What makes her special?

Fortunately, I sit next to young Josh Mellick, who proceeded to give me a crash course on Taylor Swift. This is the TLDR version. She began her career in country music, which is an art form that relies heavily on storytelling about love, tragedy, joy, sadness, loneliness, and other universal human experiences. The problem with country music is that it only makes up a 14.7% market share of total music sales.

She then made her move into the pop genre, which makes up 29.2% of the market share, thus instantly doubling the potential reach of her music. A brilliant business decision. But the key factor that makes her stand out seems to be the way she has approached her songwriting; she’s largely retained the storytelling style of country music and appears to have a lyrical complexity that resonates with people and allows her to connect with her fanbase. Something that seems to be missing in modern pop music.

My wife also says that she dates a lot of guys that her fanbase dreams about, and then she writes songs about them… so there’s that, too.

Anyway, onto more serious matters. Her Australian tour in Sydney and Melbourne has drawn crowds from as far as New Zealand, and when her global tour is completed, it is likely to be the highest-grossing tour of all time at USD 1.4 billion. It’s estimated that the total economic impact will be north of USD 5 billion in the host cities. Locally, Qantas needed to add 64 flights between Sydney and Melbourne as well as additional flights from New Zealand, and Melbourne Airport faces its busiest day since the pandemic began. This has all happened during February, the quietest month for air travel.

This bump in economic activity has even drawn the attention of Michele Bullock, the Governor of the RBA, as the ‘Taylor Swift inflation’ effect has been measured as a temporary spike in the countries where she has toured. Fortunately, the policy impact appears to be muted as people largely appear to have cut spending in other areas to pay for tickets, hotels, restaurants, bars, and Uber rides when they attend these concerts. After all, this is the type of economic activity that adds the often repeated ‘sticky services inflation’ mantra that has been in the news recently. For the time being, we don’t have to worry about Taylor Swift’s impact on our overall investment thesis.

Services inflation continues to fall as we watch a real-time collapse of the employment market, with the unemployment rate jumping from 3.9% to 4.1% this month. The forward indicators of the employment sector remain very weak, and as we have been saying for about a year, this is the final domino to fall in the business cycle before we see a rate cut. This will see a credit impulse into the asset markets, which will cause property prices to rise sharply this year.

Posted by Gavin Chau, on 20th Feb 2024