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After winning the New Hampshire primary on January 23, Donald Trump appears to be on track to win the Republican presidential nomination. President Joe Biden faces virtually no opposition on the Democratic side. Both men are currently campaigning for each other. The 2024 general election is underway.
Inflation is shaping up as a variable likely to determine the winner in November, and Mr. Biden is now familiar with the issue. For economists, inflation is almost back to normal. Inflation has fallen sharply from a high of 8.9% in 2022 to 3.3% today, and the latest indicators suggest inflation will continue to decline. Reducing inflation has fueled an impressive rally in the stock market, with the S&P 500 index up 20% from its October low.
But most voters don’t think like economists, and even though overall inflation is down, the prices of necessities like food, rent, and energy have risen and continue to rise. Americans know this well. Voters’ attitudes toward inflation, whether it returns to normal or becomes an indefinite penalty, could be a deciding factor in choosing candidates in the fall.
A new model from Oxford Economics finds that a slight rise in inflation by the fall could swing November’s presidential election to Trump. Like other forecasters, Oxford believes voters in a handful of swing states will tip the balance in either direction: Georgia, North Carolina, Pennsylvania, Michigan, Wisconsin, Arizona and Nevada. And the degree to which people are concerned about inflation will determine whether they support or oppose Biden.
Oxford developed three election scenarios related to inflation. In the former category, although inflation continues to decline, voters are focused on the cumulative rise in prices since President Biden took office, with Trump outperforming Biden. Under these results, Trump would win back five swing states that Biden won in 2020 (Georgia, Pennsylvania, Wisconsin, Arizona, and Nevada) and win the Electoral College by 297 to 241. You will be victorious.
That’s a clear risk for Biden. Compared to pre-COVID-19 2019, food, rent, transportation, and household utility costs are all slightly higher than income, with the typical household falling behind during this period. It means that. That trend reversed last year, as incomes rose faster than inflation and workers began to catch up. But a lot depends on whether voters feel they’re making progress, which doesn’t necessarily match the statistical reality.
In the second Oxford scenario, voters would lighten up a bit, worry less about the cumulative rise in prices, and praise Biden for lowering inflation. Although Biden lost two battleground states, Georgia and Nevada, he won the Electoral College by an overwhelming margin of 281 to 257.
Oxford University’s third scenario is similar to the second, with voters focusing more on improving real incomes than on inflation itself. In this model, Biden wins 287 to 251.
These models are all based on the University of Oxford’s prediction that inflation will be 2.4% in the third quarter of this year, almost a percentage point lower than the current rate. If inflation takes a U-turn and rises again, Mr. Biden will be in trouble. Oxford predicts that if inflation reaches 3.8% by the third quarter, Biden will lose Arizona but still win by a narrow margin. If it tips up to 4%, Biden would also lose Pennsylvania and Trump would narrowly win.
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While election predictions can be fun (for election buffs), they can obviously be dangerous. In the 2016 election, polls were notoriously wildly wrong, as they failed to gauge the level of support for Trump. Economic forecasts are also in jeopardy. Many economists were convinced that a recession was ahead in 2023, but with real GDP growth of 2.5% and 2.7 million new jobs after adjusting for inflation, a president seeking re-election would be happy to accept them. The year ended with such good results.
Biden has spent months touting what’s going right in the economy, including a strong job market, falling inflation and visible progress in the transition to green energy, as voters rally behind him. Consumer confidence has been low for much of 2023, with Biden’s approval rating at a dismal 39%.
There are signs that the snow is melting. Confidence soared in the latest University of Michigan survey as Americans began to believe that inflation was indeed easing. Mr. Biden and his re-election team are reportedly emboldened and will spend the next 10 months making the case that the Biden economy is helping more people than the Trump economy. The bet is that voters won’t feel it, and Biden will look numb. If so, Trump will probably be the next president.
Rick Newman is a senior columnist in the United States. Yahoo Finance. Follow him on Twitter @rickjnewman.
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