In August 2017, the footballer Neymar moved from Barcelona to PSG in a move that shook the football world. Barcelona had a massive buy out clause of €222 million in the player’s contract. A figure so high that it would put club’s off bidding for one of their star players. But in the new football world of state owned clubs, this amount was chicken feed. Qatar owned PSG were quite happy to activate the clause and Neymar moved to Paris.
The impact on football transfers was seismic. The previous biggest transfer record of Paul Pogba moving to Manchester United for €105m the previous year had been shattered. A new base line had been set for transfers. Selling clubs were comparing their wanted players to Neymar’s value. If our player is 2/3rd as good as Neymar, his value is €148m. In fact, Barcelona immediately spent €105 million plus €45 million in add ons buying Ousmane Dembele from Borussia Dortmund. Of the top 100 football transfers, 70 have been after the Neymar deal.
This is the impact of inflation. It sets a new base price for a product and we aren’t going back. Demands on the supply chain post Covid and the prolonged series of quantative easing saw inflation levels reach double digits in recent years. Central Banks have struggled to get inflation under control and have increased interest rates aggressively to reduce demand for products.
Increased interest rates will eventually get inflation under control by reducing demand for products, but it will not result in price reductions. What we will see is slower future increases.
Where we do see falls in prices is when there are technological advances. But are the prices cheaper than what was available before? The one being watched at the moment is the EV market. How much will prices come down? Having a quick look at the Tesla website, a 2023 Tesla Model S (left hand drive only) costs €128,000. A 2017 Tesla is €50,000. The most expensive Hyundi Tuscon (Ireland’s best selling car) is €52,000 for a brand new car. An Audi A4 is the same price. The top Hyundi Ioniq 5 model is €70,000.
The base line for EV cars is now much higher than it was for combustion engine cars. Technology and improvements in the production process will bring these costs down but don’t expect to be paying less than you were before.
17 July 2023