Why inflation will shape the coming electoral cycles
By Phyllis Papadavid
The coming electoral cycles will be dominated by uncomfortable macroeconomic arithmetic. The cost-of-living crisis and the ongoing global inflation shock continue to be exacerbated by regional conflicts – including escalating tensions around Iran that threaten to turn into a war of attrition, driving oil prices to multi-week highs. In the US, 71% of surveyed voters indicated dissatisfaction with the handling of the cost-of-living crisis. President Trump has offered US$5,000 to every American adult if the Republican Party wins the November midterm elections. Geopolitics has left voters attuned to the acute loss of purchasing power. And spillovers from high inflation now mean borrowing costs are at multi-year highs.
Governments have, in part, attempted to mitigate the immediate political impact of food and energy price inflation. And yet, as food price inflation increases, it will remain at the forefront of voters’ minds (Figure 1). Even with fiscal measures, costs are ultimately transferred: household subsidies become fiscal deficits; price caps can become liabilities; and any inadvertent monetary accommodation may eventually push inflation, or risk premia, higher. Global bond yields have continue to climb on account of inflation fears, and fiscal deterioration could remain a dominant driver – and stronger than it otherwise would have been.
Figure 1: Global food prices climb into multiple election cycles