In a tight one presidential race in which Americans refer to the state of the economy as the most important issueone aspect of the country’s performance could be decisive: how voters in battleground states currently experience inflation.
Americans see the economy and inflation as their two most important issues in the November 5 election CBS News and other polls. But perhaps even more important than current price levels is how voters in key states interpret their experiences with inflation, said Bernard Yaros, chief economist at Oxford Economics.
All eyes on Pennsylvania
Yaros notes that voters’ views on inflation are particularly important in Pennsylvania, which state experts say could be a tipping point in the battle between Vice President Kamala Harris and former President Donald Trump. Pennsylvanians appear to be more sensitive to inflation than people in many other states. Research from Yaros shows that every one percentage point increase in inflation before the presidential election is associated with tens of thousands of Pennsylvanians voting against the incumbent president and for the challenger.
That dynamic could be due to the state’s lower median annual household income of about $73,000, which is slightly below the U.S. median of $75,000. The Keystone State also tends to have an older population, with a median age of 41, compared to 39 in the U.S., Census data shows. Older, less affluent Americans
“People with lower incomes spend a greater share of their income on essentials – they will react more negatively” to inflation shocks, Yaros told CBS MoneyWatch. Pennsylvania “also has a slightly older demographic, so people on fixed incomes will feel the impact of high inflation.”
With new CBS News poll If there is a statistical dead heat between Harris and Trump in Pennsylvania, the path to victory in the state could come down to whether voters experience inflation in two ways, Yaros said.
Overall prices in the US rose 22% between January 2020 and September of this year, forcing consumers to spend more money on everything from groceries to car insurance. But over the past year, inflation has cooled to an annual rate of 2.4%, which is close to the Federal Reserve’s target of 2%.
Given these trends, a key question that could tip the scales in Pennsylvania, as well as other battleground states, is whether local voters focus on the cumulative price increase since 2020 or instead become happy with the way inflation has been moving over the past year. has cooled down. Yaros said.
If voters fixate on how prices for many goods and services remain significantly higher than before the pandemic — what Yaros calls the “sticker-shock model” — Trump is predicted to win Pennsylvania by more than 90,000 votes, it shows from the economist’s analysis. If, on the other hand, voters focus on the more recent price drop, Harris is expected to secure the state by 70,000 votes.
Why inflation leaves scars
Some battleground states have seen higher inflation than the broader nation since 2020, especially those in Sun Belt states like Arizona. While those areas are now seeing a drop in prices, prices in the Mid-Atlantic states, which include Pennsylvania as well as New Jersey and New York, rose 3.4% last month – a full percentage point higher than in the United States. national rateThis is evident from government data.
Yaros’ model shows that voters in other battleground states such as Arizona, Georgia and Wisconsin – states won by Biden in 2020 – could also swing in Trump’s favor if voters there viewed inflation through the sticker-shock lens. model. Meanwhile, Americans generally dislike high inflation more than other economic shocks, such as rising unemployment, he said.
“You have a rich history of literature showing that people dislike inflation much more than they dislike other negative macroeconomic outcomes, such as higher unemployment,” Yaros said, citing a 1997 paper by Nobel Prize-winning economist Robert J. Shiller.
He added: “Unemployment only affects part of the economy, but when you have periods of high inflation it affects everyone.”
It is difficult to predict which view will prevail in the battleground states, Yaros said. But he added: ‘The research we have done, which has shown how people on lower incomes have seen their share of discretionary spending permanently reduced due to the inflation shock, would argue against people fixating on the high price. levels, still angry about the political status quo.”
Inflation: what’s your view on it?
The consumer price index measures the change in price over time of a typical basket of goods and services. But many Americans tend to confuse inflation with the actual prices they pay at the store.
In other words, even though inflation has cooled, prices remain high; Moreover, 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 they think the current inflation rate is more than 10%, or more than quadrupling the real inflation rate.
“People who are not economists, when they think about inflation, they think about the price level,” Yaros said. “’A gallon of milk costs three dollars, not two dollars like it used to, and I’m angry about it.’”
Why the “misery index” might predict
Voters focused on recent lower inflation might be inclined to back Harris in what Yaros calls his “misery index model,” based on the misery index, an informal measure that looks at the sum of the country’s unemployment rate and the annual inflation.
Currently, the misery index stands at 6.5%, below the average of 9.1% since 1947.
Historically, the misery index has accurately predicted the presidential outcome, with a high index predicting that the incumbent party was about to lose. For example, the misery index reached 15% in 2020, indicating that President Trump was vulnerable in that year’s race.
To be fair, there are plenty of other factors that could influence voters this year, from immigration to abortion, Yaros acknowledged. And despite Americans’ bleak view of the economy, consumers are still spending money.
“We’ve seen such a wide gap between consumer sentiment measurements and actual consumer spending, which could cause people to say one thing and behave differently,” he said. “I don’t think anyone can say for certain which way this will break.”
