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Inflation, Polling Suprsies, Political Consequences

Exploring the political consequences of higher inflation through the lense of polling surprises

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Understanding how macro-economic surprises such as inflation can be linked to the fall in consumer confidence and household sentiment, which can ultimately produce political spillovers.

This white paper explores the wider consequences of inflation by providing an analysis of the nature of the relationship between inflation and household sentiment, exploring the extent to which inflation surprises can impact political outcomes. This analysis is empirically benchmarked against the “Misery Index” to provide an analysis of consumers’ distaste for inflation through a Partial Adjustment Model, to assess the degree of economic pain consumers would be willing to bear in exchange for lower inflation.

Access the full report to find out how:

  • Reuters poll data reveals that inflation has repeatedly surprised to the upside over the past year, earning a substantial return for investors exposed to this macro factor.
  • Research benchmarked against the "Misery Index" exemplifies that higher inflation and unemployment have roughly the same negative impact on household sentiment. 
  • Higher inflation negatively impacts support for incumbent politicians which increases bipartisanship, and is likely to outweigh the even stronger historic bias against sitting politicians which is the defining feature of midterm elections.

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Front cover of the Exploring the political consequences of higher inflation through the lens of polling surprises report
Inflation has reached levels that are unprecedented for a generation and there are already signs that precautionary savings and higher interest rates are weighing on growth.

Fathom Consulting

Key content

The existence of the “money illusion"

Can lead to a perceived fall in a person’s monetary wealth, increasing precautionary saving and a decrease in consumption, leading to worse macroeconomic outcomes.

The nature of responses to COVID-19

Has caused a pivot away from the consumption of services and towards the consumption of goods.

The political impact of inflation

Empirically benchmarked against the “Misery Index”, there is a clear link between consumer sentiment and higher inflation causing increased bipartisanship in US midterm elections.