Here’s what could decide the election: How state voters perceive inflation

In cramped conditions presidential race in which Americans call the state of the economy the most important questionOne aspect of the country’s performance may prove decisive: how voters in battleground states currently perceive inflation.

Americans view the economy and inflation as the top two issues in the Nov. 5 election, according to CBS News and other surveys. But perhaps even more important than current price levels is how voters in key states interpret their experience of inflation, according to Bernard Jaros, lead economist at Oxford Economics.

All eyes on Pennsylvania

Yaros notes that voters’ views on inflation are especially important in Pennsylvania, which state experts say could be a tipping point in the rivalry between Vice President Kamala Harris and former President Donald Trump. Pennsylvanians seem more sensitive to inflation than residents of many other states. Jaros’s research found that every 1 percentage point increase in inflation before a presidential election is associated with tens of thousands of Pennsylvanians voting against the incumbent and for the challenger.

This dynamic may be due to the state’s lower median annual household income of about $73,000, slightly below the U.S. average of $75,000. The Keystone State also tends to have an older population, with a median age of 41 compared to 39 in the United States, according to census data. Older and less affluent Americans

“Low-income people spend more of their income on necessities—they will react more negatively” to inflation shocks, Jaros told CBS MoneyWatch. Pennsylvania “also has a slightly older population, so people on fixed incomes will feel the sting of high inflation.”

Happy new CBS News Poll Showing a statistical tie between Harris and Trump in Pennsylvania, Jaros said the path to victory in the state could come down to whether voters face inflation in one of two ways.

Between January 2020 and September of this year, overall U.S. prices jumped 22%, forcing consumers to pay more for everything from groceries to auto insurance. But inflation fell to an annual rate of 2.4% last year, approaching the Federal Reserve’s 2% target.

Given these trends, a key question that could tip the balance in Pennsylvania, as in other battleground states, is whether local voters will focus on cumulative price increases since 2020 or instead rejoice at how inflation has fallen over the last year. – Yaros said.

If voters become fixated on the fact that prices for many goods and services will remain significantly higher than before the pandemic (what Yaros calls a “shock-shock model”), Trump is projected to win Pennsylvania by more than 90,000 votes, the economist’s analysis found . If, instead, voters focus on recent price declines, Harris is projected to carry the state by 70,000 votes.

Why inflation leaves scars

Some states have higher inflation rates than the nation as a whole as of 2020, especially Sun Belt states like Arizona. While these regions are now seeing prices decline, prices in Mid-Atlantic states including Pennsylvania as well as New Jersey and New York rose 3.4% last month—a full percentage point higher than last month. month. national coursegovernment data shows.

Jaros’ model shows that voters in other battleground states such as Arizona, Georgia and Wisconsin—states Biden won in 2020—could also swing toward Trump if voters there view inflation through a shock model. Meanwhile, Americans tend to dislike high inflation more than other economic shocks such as rising unemployment, he said.

“You have a long history of literature that shows that people dislike inflation much more than they dislike other negative macroeconomic outcomes, such as rising unemployment,” Jaros said, pointing to a 1997 paper by Nobel Prize-winning economist Robert J. Shiller.

He added: “Unemployment only affects part of the economy, but when there are periods of high inflation, it affects everyone.”

It is difficult to predict which views will prevail in battleground states, Jaros said. But he added: “The research we did, which showed that people on low incomes saw their share of discretionary spending fall steadily due to the inflation shock, suggests that people are fixating on high prices.” levels, still dissatisfied with the political status quo.”

Inflation: how do you feel about it?

The Consumer Price Index measures changes in prices over time for 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 dropped, prices remain high; Moreover, they will remain high unless there is a period of deflation, which usually occurs only during a sharp economic downturn. It also explains why more than 1 in 4 people surveyed by YouGov in August said they believed the current rate of inflation was more than 10%, or more than four times the actual rate of inflation.

“People who are not economists, when they think about inflation, they think about the price level,” Jaros said. “A gallon of milk costs $3 instead of $2 like it used to be, and that upsets me.”

Why the “poverty index” may portend

Voters who emphasize the recent slowdown in inflation may be inclined to support Harris in what Jaros calls his “poverty index model,” based on the Poverty Index, an informal measure that takes into account the sum of a country’s unemployment rate and the poverty rate. annual inflation rate.

The poverty index is currently 6.5%, lower than the 9.1% average since 1947.

Historically, the poverty index has been an accurate predictor of the outcome of presidential elections: a high index score predicts that the incumbent party is doomed to lose. For example, the poverty index reached 15% in 2020, indicating that President Trump was vulnerable in that year’s race.

Of course, many other factors could sway voters this year, from immigration to abortion, Jaros acknowledged. And despite Americans’ gloomy outlook on the economy, consumers are still spending money.

“We’re seeing such a gap between consumer sentiment readings and actual consumer spending that people may say one thing and act another,” he said. “I don’t think anyone can say for sure how that will happen.”