The costs of inflation is a common topic in introductory macroeconomics. We cover it in ECONS101. The challenge in recent years has been getting students to understand inflation at all. After around three decades of low inflation, it just hasn't been really relevant until quite recently. Now, the costs of inflation are becoming all too apparent.
However, one cost that we tend to overlook is the political cost. High inflation can be quite damaging to the political party in power at the time, as increases in the cost of living cut into voters' pay and erode their savings. This has been the case in New Zealand, but appears to be even more the case in India, as noted in this Financial Times article (paywalled) from July:
Higher food prices have in the past proved politically precarious for incumbent Indian governments, with analysts attributing famous election upsets to anger over high onion prices.
India’s opposition has seized on the latest surge to attack Modi’s government. Mallikarjun Kharge, president of the Indian National Congress, the main opposition party, blamed vegetable price inflation on the BJP’s “loot” and “greed”.
“The public has become aware and will answer your hollow slogans by voting against the BJP,” he said this month...
The BJP remains the favourite in national elections, which are due in the first half of next year, but faces a series of potentially tough state polls in Rajasthan and Madhya Pradesh later this year. It suffered a major setback in May, losing control of Karnataka to Congress.
A disgruntled voting public creates a risk for the government, particularly in an election year. India's ruling BJP party have responded by implementing a rice export ban (in order to lower the domestic price of rice), as well as subsidies, as well as giving out free rice. However:
The BJP’s restrictions on rice exports, designed to appease consumers, have upset another powerful constituency: farmers, many of whom stood to benefit from higher prices.
Swamy K, a 68-year-old rice farmer in a village near Mysuru, said he remained loyal to Modi even though he loathed Karnataka’s erstwhile BJP government. But he said his patience with the party was running thin.
“Politicians keep saying that farmers are the backbone of the country, but that backbone has long been broken,” he said. “They put us on posters, but give us nothing.”
It seems that they are forgetting that farmers are voters too. Or perhaps they are relying on the urban population being much larger, and more likely to vote, than rural farmers. India goes to the polls for their general election in April or May 2024 (the date is yet to be set). However, there are many other countries suffering high inflation (albeit perhaps not as high as India), with elections to come later this year, including the Netherlands (3 percent inflation rate), Poland (10.8 percent inflation rate), and of course, New Zealand (6.0 percent inflation rate). It will be interesting to see what price the incumbent governments pay (pun intended) for the higher-than-usual inflation rates that their voters have been experiencing.
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