In tight presidential race where America refers to the economic state as the most important issueOne aspect of the country’s performance can prove decisive: How Voters in the country’s war now perceive inflation.
Americans ranked the economy and inflation as the top two issues in the November 5 election, according to CBS News and other polls. But perhaps even more important than current price levels is how voters in key countries interpret their experience with inflation, according to Bernard Yaros, chief economist at Oxford Economics.
All eyes on Pennsylvania
Yaros noted that voters’ views on inflation are crucial in Pennsylvania, which state experts say could be a tipping point in the contest between Vice President Kamala Harris and former President Donald Trump. Pennsylvanians appear to be more sensitive to inflation than people in many other countries, with Yaros’ research finding that every 1 percentage point increase in inflation before the presidential election is linked to tens of thousands of Pennsylvanians voting for the incumbent and for the challenger.
That dynamic may be due to the average annual median household income of about $73,000, which is slightly below the US average of $75,000. The Keystone State also tends to have an older population, with a median age of 41, compared with 39 years for the U.S., Census data show. Americans are older, less wealthy
“Lower-income people are putting more of their income toward necessities — they’re going to react more negatively” to inflation shocks, Yaros told CBS MoneyWatch. Pennsylvania “also has a slightly older demographic, so those on fixed incomes will feel the brunt of inflation.”
With new CBS News poll showing the dead heat statistics between Harris and Trump in Pennsylvania, the path to victory in the state can boil down to whether voters experience inflation in one of two ways, Yaros said.
Overall US prices jumped 22% between January 2020 and September this year, forcing consumers to pay more for everything from groceries to car insurance. But in the past year, inflation has cooled to an annual rate of 2.4%, close to the Federal Reserve’s 2% target.
Given these trends, the main question that could tip the balance in Pennsylvania, as well as in other battleground states, is whether local voters are focused on cumulative price increases starting in 2020 or are instead happy that inflation has cooled over the past year, Yaros said.
If voters assess how the prices of goods and services remain higher than before the pandemic – what Yaros calls the “sticker shock model” – Trump is expected to win Pennsylvania by more than 90,000 votes, the economist’s analysis found. If, by contrast, voters zero in on the more recent price cuts, Harris is expected to secure the state by 70,000 votes.
Does inflation leave a mark
Some warring states have experienced higher inflation rates as of 2020 than the rest of the world, especially in Sun Belt states like Arizona. While the region is currently experiencing price declines, prices in the Mid-Atlantic states, including Pennsylvania as well as New Jersey and New York, rose 3.4% last month – a percentage point higher than national rateshow government data.
Yaros’ model shows that voters in other battleground states like Arizona, Georgia and Wisconsin – states won by Biden in 2020 – could also vote for Trump if voters there see inflation through the sticker shock model. Meanwhile, Americans usually do not like high inflation more than other economic shocks, such as rising unemployment, he said.
“You have a rich history of literature that shows people disliking inflation more than they dislike other negative macroeconomic results, such as higher unemployment,” Yaros said, pointing to a 1997 paper by Nobel-prize economist Robert J. Shiller.
He added, “Unemployment only affects part of the economy, but when you have a period of high inflation, that affects everyone.”
It is difficult to predict the future prospects of warring countries, Yaros said. However, he added, “Research has been carried out, which shows how low-income people have seen the share of spending for discretionary spending permanently reduced due to inflationary shocks, which would argue that those who focus on high prices. level, still confused with the political status quo.”
Inflation: How do you see it?
The Consumer Price Index measures price changes for a typical basket of goods and services. But many Americans tend to conflate inflation with the actual prices they pay at the grocery store.
In other words, although inflation has cooled, prices remain high; what’s more, they will remain high unless there is a period of deflation, which usually only occurs when there is a sharp economic downturn. It also explains why more than 1 in 4 people polled by YouGov in August said the current rate of inflation is over 10%, or more than four times the actual rate of inflation.
“People who are not economists, when they think about inflation, they think about the price level,” Yaros said. “‘A gallon of milk is $3, not $2 like it used to be, and I’m upset about that’.”
What “suffering index” can portend
Voters focused on the new cooler inflation rate may be inclined to support Harris, in what Yaros calls the “misery index model,” based on the misery index, an unofficial measure that looks at the sum of the unemployment rate and the unemployment rate. annual inflation rate.
Currently, the misery index is at 6.5%, below the average of 9.1% since 1947.
Historically, the misery index has accurately predicted presidential outcomes, with high index numbers predicting that the incumbent party will lose. For example, the misery index reached 15% in 2020, indicating that President Trump is vulnerable in that year’s race.
Of course, many other factors could sway voters this year, from immigration to abortion, Yaros acknowledged. And despite America’s gloomy view of the economy, consumers are still spending.
“We’ve seen a disconnect between measures of consumer sentiment and actual consumer spending, so people can say one thing and act differently,” he said. “I don’t think anyone can say for sure whether this method will break.”
