The spectre of inflation

The US election shows the conventional wisdom was right all along: Controlling inflation should be the primary focus of macro policy

- MIHIR S SHARMA

A spectre is haunting the elected heads of the world—the spectre of inflation. It seems voters hate nothing more than inflation, and this has caused multiple incumbents across the world to lose support in elections.

The resounding defeat of the Democratic Party in the United States’ recently concluded presidential elections has been assigned to many factors—the foolhardy decision of the incumbent president, Joe Biden, to run for a second term before he was pushed out; the growing divide between conservative men and progressive women; and the loss of faith among Hispanic voters in the centre-left. All of these are probably relevant. But the truth is that the result is probably overdetermined. And in the end, the inflation effect on voter preferences will have swamped everything else.

The US is, as has been pointed out by data analysis in the Financial Times, far from unique. Every single incumbent party in a developed economy that faced an election this year lost vote share—the first time this has happened on record. (Records begin in 1905.) This is a phenomenon that requires an explanation, and none is forthcoming other than the global surge of inflation that followed the pandemic.

While more work needs to be done on the public reaction to this inflationary moment, some trends are immediately apparent. Put together, they serve as a reminder of the importance of orthodox assumptions about how to maintain low and stable inflation.