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World Cup 2014: Inflation Edition

Around the world, all eyes are on the likes of Ronaldo, Messi and Neymar but here at Premise, excitement is centered on the data being collected by our network on the ground in Brazil. Areas near World Cup stadiums all across Brazil are experiencing much higher inflation than areas further away. Prices of consumer staples are close to 20 per cent higher on average near World Cup stadiums compared to an area 10km away. Moreover, this geographic difference in prices only appeared in June, indicating the impact of the World Cup on the local economy.

Figure 1: Higher prices near World Cup stadiums

Figure 1: Higher prices near World Cup stadiums

Up to June 2014, Premise’s network had captured over 77,000 observations on consumer staples spanning a range of cities, big and small, in Brazil. Each observation is a point in Figure 1, where I show the price of each observation relative to the average price for the same good in the same city, against the distance to the closest World Cup stadium. By definition, the observations are centered around zero.

Interestingly, there is a marked downward slope for the observations in June indicating that observations taken near World Cup stadiums tend to be higher than average. Purchasing nearby a World Cup stadium will cost 18 percent more on average, when compared to shopping 10 kms away.

The astute among you may call baloney and argue that “areas near World Cup stadiums were always more expensive”. Ignoring the low likelihood of the Brazilian government deciding to acquire land in wealthy areas, it is simple to check the relationship between distance and prices over time. Figure 2 depicts the increase in relative prices as one shops a kilometer closer to a World Cup stadium. Before June, the month of the World Cup, shopping closer to a World Cup stadium would actually save you a small amount of money, 0.5 percent per km. That relationship reverses in June, with shoppers paying roughly 3 percent more per km they are closer to the World Cup.

Figure 2: Relationship of distance and prices over time

Figure 2: Relationship of distance and prices over time

In summary, the World Cup has led to a localized bout of inflation near World Cup stadiums. On a positive note, those that find themselves near a World Cup stadium are actually near the World Cup itself and should comfort themselves with the greatest show on Earth.