Inflation Likely to Become Hot Button Topic in 2022 Election
A recent government report revealed that inflation accelerated in September just in time for the midterm election. According to a post at politico.com, the inflation rate increased the pressure on low-to-middle-income families beyond the usual daily concerns of making ends meet and being able to afford a few luxuries. The Federal Reserve Board continued its policy of raising interest rates to combat inflation by making it too expensive to borrow, but so far that approach hasn’t curbed inflation.
The Consumer Price Index and Inflation
The critical rundown of consumer prices in the Consumer Price Index rose 8.2% when compared to the rate of September of 2021, one year ago. Based strictly on monthly increases in prices, the index rose 0.4% in September of 2022, which sharply contrasted with July and August when prices rose just 0.1%
Interpreting the IndexRead More »
There has been frequent criticism of the Consumer Price Index for failing to take into account the following situations:
- The core cost of living varies considerably based on your income level, and the prices of basic goods like food and clothing have escalated to incredible levels.
- The poorest people don’t derive any benefits from relatively steady new car prices because they can seldom afford such extravagances.
- Recently, some stores selling all items for $1.00 raised their prices to $1.25, a 25% increase in prices for bargain hunters.
- Gas prices are dropping, which lowers the average inflation rate, but many people struggle to pay for basics.
- Rising grocery bills, rental costs, utility bills and rising service rates put amazing pressure on low-income Americans.
- The Consumer Index focuses on averages, and it only provides significant insights to people with average incomes and politicians at election time.
Election time is near in the United States, and many Republican candidates seek to blame congressional Democrats and President Biden for the rising inflation rate. Many experts predicted out-of-control inflation as the result of the various stimulus measures passed. However, many of these measures were passed under Trump, and the country needed the stimulus funds desperately in many cases.
Pessimism on the Economy
Inflation certainly ranks as a legitimate concern for voters because it generates great pessimism over the country’s economic health despite a low unemployment rate and strong growth in higher paying jobs. Americans seem divided along partisan lines on the greatest issues facing voters. Republicans feel that inflation is the biggest concern; Democrats feel that preserving democracy is the most important issue.
Americans take an increasingly dim view of their own financial profiles based on a steady erosion of buying power. Service fees and mandatory subscriptions become increasingly common, and entertainment service prices grow steadily year-in and year-out. More and more people cancel their satellite or cable service as a luxury that broadcasts the same films over and over.
According to research conducted at 19thnews.org, 46% of the public feel their personal finances are in poor shape, an opinion that gained traction since March of 2022 when only 37% of survey respondents expressed that opinion. The opinions stayed consistent throughout most of the Covid-19 pandemic.
The Government’s Response to Rising Inflation
The higher-than-expected increase in September’s inflation rate will likely have little effect on the Federal Reserve Board’s response in getting inflation under control. The Fed continues to monitor the situation and has boosted the prime lending rate by three full percentage points since March, which already ranks as the highest boost since the early 1980s.
Higher borrowing rates are designed to put the brakes on mortgage applications, business loans and new car auto loans to fight inflation. The lack of a measurable response to these measures to fight inflation worries officials, and another increase of 1.25% is being considered. That would put the prime rate at its highest level in 14 years.
However, many economists believe that the lower prices of used cars will gradually reduce the inflation rate within the next few months. That would be good news for President Biden but do little to help in the 2022 battle for congressional control.
Used car prices are finally dropping after getting a big boost in business caused by a shortage of new cars. These shortages were caused by factory shutdowns and shortages in materials that the Covid-19 measures generated.
Currently, many retailers are offering big discounts on holiday merchandise to turn things around, which has the added benefit of reducing inflation. The yearly core inflation rate averages the highest in more than 40 years.
Why Political Fortunes Rise and Fall Based on Inflation
“It’s the economy, stupid’ was a phrase popularized by James Carville during the 1992 presidential election in his successful role as Bill Clinton’s campaign manager. Even though the November election of 2022 doesn’t include a presidential race, the threat of uncontrolled inflation is being co-opted by Republicans in their attempt to earn majorities in the Senate and House of Representatives.
All things being equal in other respects, inflation fears might well encourage the public to vote for a change in the country’s leadership.
According to opinion polls polls quoted at pewresearch.org, inflation is viewed as the top political issue facing voters by an astonishing 70%. Other economic issues include the high cost of healthcare cited by 55% of respondents and steadily rising mortgage and rental prices.
Even though increases in service costs are understandable after freezing prices by many businesses during the Covid-19 crisis, most people simply vote based on their economic comfort, and few feel much confidence at present. President Biden still has two years to win over voters, but the House and Senate seem likely to choose a change in direction.
Services and Rents Continue to Rise
Rising rental costs provide difficulties for the Fed to measure. Recent data points to the fact that new lease rates are beginning to drop, but historically, rental increases take longer to come back down. All prices of services tend to stay the same when prices are dropping and rise when prices rise. It usually takes a new technology or competitive pressure for businesses to decrease their service prices.
That’s why rents, housing, healthcare services, educational costs and veterinary service prices are rising and will take a lot of time before dropping. These are prices that most lower income families face. Most service prices don’t actually change on a month-to-month basis, so people face continued contractual agreement rates even if the rates do go down.
Most Americans Don’t Remember Rampant Inflation
Inflation can be insidious and quickly transform a reasonable fixed income or a lifetime’s retirement savings into insufficient money to keep up with inflation. Most Americans have never experienced a time when rapid price increases threatened their way of life. The return of high inflation was predicted by economic experts despite Treasury Secretary Janet Yellen’s assurances that inflation caused by stimulus payments would be easy to control.
Many critics suggest that President Biden is paying insufficient attention to the problem that most Americans believe is the most important issue for average Americans. Even the wealthy fear inflation because it can reduce their buying power.
About 58% of Americans believe that Biden hasn’t been focusing enough attention on the economy, and only 33% of the public feel that the Democrats are failing to consider the most important issues. Regardless of the midterm election outcome, President Biden will face increasingly stiff opposition to his legislative agenda from citizens with inflation fears.
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