With all the excitement of the Eurozone crisis and the extraordinary economic climate currently I decided it was time to dust off my old undergraduate textbooks on International Economics. I had intended to re-build a deep understanding of the influences on exchange rate movements, and critique the different theories on the competitive advantage of nations. In the end I decide to settle on 3 more down to earth questions:
- Will Argentinian inflation mean more expensive trips in the future?
- Why do Chilean opertors sometimes charge for their trips in Chilean Pesos when US dollars are the norm?
- Should we expect the dollar to pound exchange rate to impact the cost of Patagonian holidays for UK travellers?
First of some high level data points:
Some people ask me why trips to Patagonia are more expensive than, say the Himalayas. Some of the answer lies above!
So, question number one: with Argentinian inflation running at 10% (and twice that of the UK) can we expect the cost of holidays in Argentina to increase?
Answer: NO. Exchange rate movements (the devaluation of the Argentine Peso (ARS)) have meant that much of the inflation effect is kept in check. I think i may have referred to this effect as Purchasing Power Parity when I was at university.
Question number two: Is the Chilean Peso following the same trend as the Argentinian Peso? And why are Chilean trips often charged in local currency while others are charged in US dollars?
Answer: NO. The exchange rate of the Chilean Peso is far more volatile and, if anything, the trend is going in the other direction.
Question number three: Given that the majority of trips to Patagonia are priced in US dollars are exchange rates relative to the Pound going to have a meaningful impact on prices for UK travellers?
Answer: I don’t know! The dollar:pound exchange rate has been stable for the last couple of years, but in the current climate who know what might happen next.
Overall, what can we expect? I suspect more volatility and lots of unknowns, but the good news is that there’s no obvious underlying trend towards an increase in the real price of Patagonian holidays for UK travellers.