The political cost of inflation: A lesson from the US election

Higher prices for basic foodstuff like eggs tend to linger in voters' minds. The Biden-Harris administration is not the only government to be punished for it at election time.

- Linda Lim

As an economist living in Michigan, an electoral "swing state" in the United States, I have been asked by many Singaporeans what role the economy played in Donald Trump's victory - and what lies ahead.

From the perspective of economists, the US economy has been called "the envy of the world", enjoying robust gross domestic product growth, strong job creation, unemployment at near-record lows, wages rising faster than moderating inflation, a booming stock market, and world-leading technological innovation and productivity growth.

Despite this, in the run-up to the recent presidential election, voters have consistently said the economy is "bad". A majority of those citing this as their main concern voted for Trump.

This is because "ordinary people" are much more upset by rising prices (inflation) than they are mollified by rising real wages. Prices may be rising more slowly now, but they are in absolute terms much higher than they were four years ago, when President Joe Biden took office with Ms Kamala Harris as Vice-President.

WHAT'S BEHIND RISING PRICES Unlike economists, most voters may not understand that the president - much less the vice-president - has very limited control over the economy. The recent inflation, a global phenomenon, was the result of "exogenous shocks" pandemic-induced snarls in global supply chains, post-pandemic pent-up demand surges - all that "revenge" shopping, dining and travel - and the rise in food, energy and commodity prices stoked by the war in Ukraine. Aggressive fiscal stimulus contributed to the surge in prices. But it was begun under then-President Trump, and continued by President Biden, with bipartisan support in the US Congress. And it is also responsible for the strong growth and job creation that have accompanied rising prices - the three usually go together, reflecting strong demand.