This story is meant as a roadmap to the politics of the next couple of years. Labor is up for election in 2025, and it might think defeating inflation would be a big achievement it should boast about during the campaign.
But the Voice referendum shows the government hasn’t taken the temperature of the electorate very effectively. This piece proposes a better way to do that via an Inflation Anger Index.
Like it or not, people care about cost of living above all else. And they’re going to be mad on this topic for ages. Here’s why.
Inflation is like looking at the sun: there’s a painful aftereffect. Our inflation is on the way down, as the Australian Bureau of Statistics reports, but that isn’t reflected yet in voters’ perceptions. The Reserve Bank defines inflation as a 12-month change in prices, but people don’t operate on such a rigid schedule. We think about price changes over different time scales.
It will be a big achievement if the government can do it, but voters won’t give it credit. If the policy wonks in Treasurer Jim Chalmers’ office try to hijack the Labor campaign and say this is a big accomplishment, the people will be furious, the 2025 election will be lost, and we will get a prime minister in Peter Dutton.
This matters because, as the next graph shows, while prices may not have risen much over the past 12 months, they are still way higher than pre-pandemic.
A smarter way of thinking about perceived inflation would recognise some people have longer memories than others, and blend those three series together. So here’s the simplest version of my “inflation anger” series. It puts equal weight on one-year, two-year and three-year inflation, and shows why inflation anger has not yet abated.
This alone should be enough to stop Labor from putting its foot in it. Remember, some people are comparing prices to pre-pandemic. But still the index is not quite as nuanced as it might be. Some prices are more salient than others. People get very angry about fuel prices, for example, because we don’t vary the amount of fuel we buy with the price. It isn’t actually a huge part of the household budget but it affects inflation perceptions.
So what if we varied our inflation index by the most recent changes in the price of fuel? Here’s the same chart from above with fuel added.
That’s more volatile, and also higher more recently. It’s a more realistic measure of whether people are mad about inflation in any given month.
But we could make it reflect the situation on the ground better still, because inflation doesn’t include mortgage payments, and those are hurting the household budgets of a big chunk of Aussies. Roughly one-third of people are paying off their home, roughly one-third are renting, and roughly one-third own outright. The one-third who are paying off their home are particularly down in the dumps right now because of high repayments.
None of this is scientific — but it illustrates the following: concern over rising prices isn’t the same as official inflation. But that’s not because people are economically illiterate. It’s because inflation is a narrowly defined technical thing whereas price concerns are broader and last longer than 12 months.
Here’s my final version of the Inflation Anger Index, including RBA data on scheduled home loan repayments.
The difference between this version and the last one is that it goes up more steeply in 2023 than in 2022. (It also has only quarterly data rather than monthly, thanks to limitations at the RBA.) While inflation was acute last year, home loan increases are acute this year as loans flip from fixed to variable rates. And the more your mortgage costs, the more the new high prices in the supermarket seem an outrage.
Could this rapid souring of personal finances during 2023 have explained why polling on the Voice flipped over the course of 2023, leading to the defeat of the referendum in the mortgage belt? I’d certainly be bearing that in mind if I were a Labor strategist. Because what these indexes show is the scarring of inflation is going to last a long time.
Anyone who dares crow about having defeated inflation — according to its technical definition of a 12-month rise in prices — will face scorn. Labor needs to focus on something else altogether if it wants to win in 2025.
All the graphs and talk about 1, 2, or 3 year graphs is just that, Talk.
I shop every week, I am on a pension but lucky in that I have some assets and help with hospital/medical bills. But I see inflation on a daily and weekly basis. Every week I shop in Woolworths prices on some product go up, spread around so the hopefully shoppers wont notice, but I do. Straight out profit maximization, for the shareholders, nothing for the worst off section of our population.
You could have included rent rises and rental availability in one of your Anger Indexes, but then the computer screen would have been too small to contain the peak of your graph.
Absolutely. People howling about disinformation and racism miss the same lesson we saw in Brexit and rise of Trump – it’s the economy stupid.
We’re in a burnout economy with the RBA trying to pump the brakes while demand is still being maintained/increasing because of rapid population growth. This is a very good article and needs to be referenced when the Coalition bring out the inflation hammer next year in the lead up the next federal election.
People howling about disinformation and racism miss the same lesson we saw in Brexit and rise of Trump – it’s the economy stupid.
But the results of both Brexit and Trump have been a decline in both the US and UK economies. Particularly on Brexit, people were told and sold a lie. The UK trade position has worsened while the administration costs and delivery times of trading with Europe have risen enormously. It may not have been explicitly about racism, though there was more than an element of UK superiority in the pre-poll claims, but there was plenty of both dis- and mis-information.
That’s not why they were elected though. They were elected because bipartisan status quo economics is hurting all but the top few percent, and both Trump and the Brexiteers claimed they would change that.
Disagree, like pro-Brexit (& The Voice or Trump) media and influencer agitprop leading up to the EU referendum, was economical with the truth and facts, for electoral powder targeting dominant older monocultural and regional voters (vs. working age and youth); backgrounded by decades of dog whistling immigration and/or the EU by the nativist authoritarian right.
In parallel, like ‘immigration’ tropes, ‘cost of living crisis’ is wheeled out often and reinforced by repetition, but is not across the board, even if people think so, in some aspects, they are suffering in Oz, compared to…? However, when one hears this from over committed middle income types, who have just had a trip to Europe etc. when they complain that they are victims……
A big problem is the conceptual disconnect – captured in that Krugman tweet – between what inflation is (a measure of change) and what it is presented/perceived as (a measure of level).
So inflation easing doesn’t mean prices are going back to where they were, it means they’re not growing as quickly from where they are.
Your anger index probably needs to work in wage growth somehow, because most people are less bothered by inflation if their wages are growing faster than it (obviously those on fixed incomes feel differently).
People can be as mad as hell about prices, mortgages etc but its a big jump from there to voting for Dutton. Inflation is still rising but every poll has him and his party in a deflationary spiral.
Dutton and the Liberals are ideologically incapable of fixing inflation. Because it means taking on the east coast gas cartel to lower energy bills and reducing the migration intake to a sustainable level. Neither of which will fly with the BCA. But they are sure to demonise migrants which is going to make the election campaign totally horrible to watch.
Election results depend on how many people believe the lies of which party. And when the facts fail to match the spruke just change the definitions until they do. The duopoly is rubbish, so try someone else.
It’s not only Dutton and the LNP who are ideologically incapable of taking on the gas cartel and reducing immigration; aside from (and very much because of) the blip of Shorten’s failed tilt, the ALP are quite happy to take the mantle of a safe pair of hands for capital.
The neoliberal insanity of insisting that what’s best for those making out like bandits is what’s best for us all seems to burn as bright as ever, in much the same way that giant stars last a fraction as long as modestly sized stars… And I’m very much afraid the dynamic of clinging to the status quo in the face of fears generated by that same situation will persist as long as possible.
The ridiculous MSM has jumped the shark long since, according to anyone who actually pays attention, yet it seems the vast majority continue to be swayed by their staging of the Tweedledum vs Tweedledee act. Without some sort of concerted grassroots effort to call out this MSM/LNP/ALP cartel, I give it no better than 50/50 that we’ll get a minority Labor government instead of Dutton’s mob of unvarnished vandals.
…And in the happy event that Labor has to form government with an assortment of Greens and Indies, you watch how fast they reneg on that ostensible alliance to vote with their real partners, the Lying Nasty Party.
Abandon all hope; our chances were reduced to dust decades ago, when only the most extremely vigilant of us were being written off as kooks by everyone else. I’ll be reciting the lyrics of Jello Biafra while people continue to rearrange the deckchairs, even on a surface tilting towards vertical.
They won’t be. They’ll be voting against Labor.
Yes but they still wont vote for Dutton. Minority Labor government incoming.
If they put Labor last and LNP second last, in most electorates that’s a vote for Dutton.
Heaven forbid.
Greens or independent is the answer
The corporate media are waiting until after new year to decide whether to nuke labor. They are itching to do it right now for the referendum outcome, but they know that would not be a good look given who actually lost out. Instead they’ll wait until early next year, and create a whole narrative that Labor has disappointed voters and they are taking another look at Dutton. Pressure will build for Dutton to go if he is a drag on a recovering LNP vote. As Nikki Sava is writing, Dutton has his roadmap, and now he just needs a bandwagon to get him to the lodge.
And MSM will happily comply