The Economics of Oktoberfest

Brian Blackstone / the Wall Street Journal
HuffingtonPost

Oktoberfest Inflation Set To Rise More Than 3 Percent

Germany has been in open revolt over the European Central Bank‘s policy of buying the government debt of struggling euro-zone economies such as Spain and Italy, arguing that it is destabilizing and potentially inflationary. Now we may know why: Oktoberfest is getting awfully pricey.

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An Oktoberfest reveler at last year’s celebration.

According to UniCredit‘s Munich-based economist Alexander Koch, Oktoberfest inflation — measured by the cost of transportation, two Mass (or liter) of beer and half a grilled chicken — is set to rise 3.3% this year from a year ago. (Read the report here.) That’s well above the ECB’s 2% target for euro-zone inflation. The 178th annual Oktoberfest begins in Munich on Saturday at noon with the Munich mayor’s declaration: “O’zapft is,” meaning “it is tapped.”

Beer prices have already been set at an average of nine euros per liter, an increase from last year, Koch writes in his research note: “Oktoberfest 2011: A Somewhat Different Safe Haven.”

It is unclear how much effect the escalating debt crisis in southern Europe and Ireland will have on Oktoberfest this year. Of the three countries in EU-IMF bailouts, only Ireland ranks in the top 10 of foreign visitors to Munich for the festivities, and it only accounts for 2%. But Italy, where austerity measures have been enacted to bring down a large debt load, ranks first. The U.S., which has its own economic woes, is second.

Still, the success of Oktoberfest rests on Germany, and Bavaria in particular, which alone accounts for more than 70% of revelers. And on that front, things look pretty good despite signs that the German economy is weakening after a robust 2010 and early 2011. Last year’s economic revival was reflected in record-high Oktoberfest beer consumption of over seven million liters.

“Although German consumer sentiment clearly peaked in recent months, the overall assessment remains positive,” Koch wrote. “Job security is still regarded as very high.”

“Despite the adverse situation on the financial markets, the odds for again strong demand for Oktoberfest goods and services this year are excellent,” he wrote.

This may be a good year for ECB President Jean-Claude Trichet, whose eight-year term finishes at the end of October, to take the three-hour train ride down from Frankfurt for the festivities.

The normally unflappable Frenchman was clearly miffed last week when asked about German complaints that he has shed the stability-oriented tradition of Germany’s Bundesbank to embark on risky bond-buying escapades.

“I would like very much to hear some congratulations for this institution, which has delivered price stability in Germany over almost 13 years at approximately 1.55%… this figure is better than any ever obtained in this country over a period of 13 years in the past 50 years,  Trichet said, loudly, at a press conference.

With his legacy on the line, Trichet would be well served to head down to Munich, grab a Mass of beer in one hand and half a chicken in the other, and make his case to the German people.

Just be sure to bring plenty of euros to account for the higher prices.

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