Not a week goes by and I see yet another inflation figure that has risen, in the Netherlands, elsewhere in Europe, or elsewhere in the world. I am following the development not only with journalistic interest, but also with a certain concern.
I have to think of the following, among other things. In October 2024, a few weeks before the American presidential election, I stood at a shopping center in a small town in Pennsylvania on a chilly morning. Dissatisfied American voters told me in unison: everything has become very expensive. In American opinion polls, the increased cost of living emerged as one of the most important election issues. Of course we know who won those elections. Donald Trump’s victory had a variety of reasons, but the wave of inflation that hit the US between 2021 and 2023 played a role a significant role. This was investigated again after the elections confirmed.
Now not only the US, but also Europe and the rest of the world are experiencing a second wave of inflation in a short time. In the US, inflation has risen from 2.5 to over 4 percent since the beginning of this year, in the euro zone from just under 2 to over 3 percent, and in the Netherlands from 2.4 to 3.5 percent. It’s because of Trump’s war against Iran, which caused energy prices to explode. In its wake, all kinds of other prices are now rising. Because more expensive oil means more expensive transport and higher heating costs. And companies pass these costs on to the customer.
Fighting inflation is primarily the job of central banks. This Thursday, the European Central Bank is expected to raise interest rates to prevent inflation from getting out of hand. With higher interest rates, borrowing money becomes more expensive, which makes consuming and investing more unattractive. This should slow down the economy and ultimately suppress price increases. The US Federal Reserve will also meet next week.
At the same time, politicians cannot sit back now. Because for them, a rising price level means new concerns among citizens about social security, with all the associated risks of social and political unrest.
Inflation as a social problem
Inflation is often disruptive from a socio-economic and political perspective. Low incomes in particular will be hit and populist politicians can benefit from this.
How does that work? ‘Inflation’ is a collective figure, a ‘basket’, which contains price increases of many individual products and services. Depending on your spending pattern, you are more or less sensitive to certain prices. Inflation therefore works out differently for everyone. But in general it can be said: for households with a lower income the impact of inflation is greater. They spend a larger part of their income on fixed costs (such as energy) and have fewer buffers to absorb blows.
During the previous wave of inflation, just after the pandemic, governments massively helped households that were struggling. But research shows that they were only successful to a limited extent. Low income groups arrived in Europe financially worse from the inflation period than higher incomes.
Inflation helps populists
The 2024 US election result is not an isolated event. Researchers from the Kiel Institute, a German economic research institute, studied the effect of high inflation on support for populist and extremist parties, from the left and from the right. They examined 365 elections in eighteen industrialized countries since 1948. What turns out? If inflation is 10 percentage points higher than citizens expected, these parties will score in the next elections on average 2.8 percentage points higher. (if wages rise with inflation, the effect is smaller). When inflation peaks, this German study states, the number of strikes and demonstrations also increases. Every percentage point of inflation results in 8 percent more demonstrations.
From other research, from De Nederlandsche Bank, shows that the high inflation of 2022 not only undermined confidence in the central bank, but also confidence in Dutch politics. A majority of respondents in this survey said they trusted national politics less. During this research, I can’t help but think of the turbulent Dutch election campaign of 2023, in which “social security” repeatedly came up as a theme. However, this does not seem to have been decisive for the PVV’s victory that year. The themes of migration and asylum played the leading role, according to the National Voter Survey 2023.
Political perspectives
How much social and political damage will the latest upsurge in inflation cause? The future level and duration of inflation are highly uncertain, but the war in the Middle East will not end anytime soon. And so the price increases will continue for a while.
The cost of living (cost of living) promise to once again be at the center of the mid-term congressional elections in the US in November. Only: this time Trump himself is the incumbent. The question is how much voters will blame him, and the Republicans, for the inflation problem.
In Europe, opposition parties can benefit from inflation if it rises further and/or lasts longer. Opposition parties of all stripes, including the radical right and radical left. What will happen, for example, in France? Presidential elections will take place there next year. The radical right-wing Rassemblement National – which is clearly ahead in the polls – wants to go all out on the theme of ‘purchasing power’. Meanwhile, the radical right-wing AfD is the largest party in Germany in national polls and is achieving success after success at state level. From opinion research It appears that AfD voters are more concerned than other voters “that prices will rise so much that I will no longer be able to pay my bills.” And in the Netherlands, that country that is so politically unstable these days? There it seems that the theme of ‘social security’ is far from over.