In a close presidential election in which Americans say the state of the economy is the most important issue, one aspect of the country’s performance could be decisive. That is how voters in battleground states currently perceive inflation.
Americans rank the economy and inflation as the top two issues in the Nov. 5 election, according to CBS News and other polls. But perhaps even more important than current price levels is how voters in key states interpret the inflation experience, said Bernard Jarosz, chief economist at Oxford Economics.
Focus on Pennsylvania
Jarosz said voters’ views on inflation are particularly important in Pennsylvania, which state experts say could be a turning point in the race between Vice President Kamala Harris and former President Donald Trump. There is. Pennsylvanians appear to be more sensitive to inflation than people in many other states, with Yarosz’s research showing that for every 1 percentage point increase in inflation before the presidential election, tens of thousands of Pennsylvanians lost their jobs to incumbents. They say it’s related to voting against and voting for the challenger.
The move may be due to the state’s median annual household income of about $73,000, slightly below the U.S. median of $75,000. The Keystone State has an aging population, with an average age of 41, compared to 39 in the United States, according to census data. Older, less affluent Americans
“Low-income earners spend more of their income on necessities and will react more negatively to inflation shocks,” Jarosz told CBS MoneyWatch. “Pennsylvania has a somewhat older demographic, so those on fixed incomes will feel the brunt of higher inflation.”
The latest CBS News poll shows a statistical dead heat between Harris and Trump in Pennsylvania, with the path to victory in the state ultimately dependent on voters experiencing inflation in one of two ways. It may come down to whether they do it or not, Jarosz said.
Prices across the U.S. soared 22% between January 2020 and September of this year, forcing consumers to spend more on everything from groceries to car insurance. But over the past year, inflation has cooled to an annual rate of 2.4%, moving closer to the Federal Reserve’s 2% target.
Given these trends, a key question that could tip the balance in Pennsylvania, as in other swing states, is whether local voters will focus on cumulative price increases since 2020 or instead The question is whether they will be happy about the slowdown in inflation. Yaros said.
If voters note that the prices of many goods and services remain significantly higher than they were before the pandemic (what Yarosz calls the “sticker shock model”), Trump could win more than 90,000 votes in Pennsylvania. The economists’ analysis shows that they are expected to win by a narrow margin. By contrast, if voters focus on recent price declines, Harris is expected to win the state by 70,000 votes.
Why does inflation leave scars?
Some battleground states, particularly Sun Belt states like Arizona, have seen higher inflation rates than the nation since 2020. Although these regions are currently seeing price declines, prices in Mid-Atlantic states, including Pennsylvania, New Jersey, and New York, rose 3.4% last month, a full percentage point higher than the national tax rate. government data shows. is shown.
Jarosz’s model suggests that voters in other battleground states such as Arizona, Georgia, and Wisconsin (states won by Biden in 2020) may also be inclined to support Trump if they view inflation through a sticker shock model. It shows. On the other hand, Americans generally dislike high inflation more than other economic shocks, such as rising unemployment, he said.
Jarosz points to a 1997 paper by Nobel Prize-winning economist Robert J. “There is a rich documentary history of dislike.”
“Unemployment only affects one part of the economy, but in times of high inflation it affects everyone,” he said.
Jarosz said it’s difficult to predict what the outlook will be in swing states. However, he added, “Our research shows that low-income groups have seen their share of discretionary spending fall permanently due to inflation shocks; “It will support sticking to prices,” he added. level, and are still outraged by the political status quo. ”
Inflation: How do you view inflation?
The Consumer Price Index measures the change in the price of a typical basket of goods and services over time. However, many Americans tend to confuse inflation with the prices they actually pay in stores.
In other words, even though inflation has slowed, prices remain high. Moreover, this level will remain high unless a period of deflation occurs. Deflationary periods usually only occur in cases of sharp economic downturn. It also explains why a YouGov poll in August found that more than one in four people said they believed the current rate of inflation was more than 10%, or more than four times the actual rate. has been done.
“When you’re not an economist, when you think about inflation, you think about the price level,” Jarosz said. “‘A gallon of milk is $3 instead of $2 like it used to be. I’m angry about that.'”
Why is the “misery index” a sign?
Voters focused on recent declines in inflation may be more inclined to support Harris, who has what Jarosz calls a “misery index model.” The model is based on the Misery Index, an unofficial measure that looks at the national unemployment rate and the total unemployment rate. Annual inflation rate.
The misery index is currently 6.5%, below the average of 9.1% since 1947.
Historically, the misery index has accurately predicted presidential outcomes, with high numbers on the index predicting that the incumbent party will lose. For example, in 2020, the misery index reached 15%, indicating that President Trump was vulnerable in that year’s campaign.
Indeed, Yaros acknowledged that many other factors could sway voters this year, from immigration to abortion. And despite Americans’ gloomy outlook for the economy, consumers are still spending.
“There’s a huge disconnect between indicators of consumer sentiment and actual consumer spending, so people can be saying one thing and doing another,” he said. “I don’t think anyone can say exactly how this will break.”
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