The Economy and the Election: How Will You Cast Your Vote?

With the election of a new president of the United States just days away, there has been a great deal of focus on the state of the economy. With inflated prices being a major concern, many are asking which candidate is best qualified to manage this important issue. On September 11, updated economic data revealed that the annual inflation rate had dropped to 2.5%, signaling that the change in spending by households is declining. In fact, this reported inflation rate was the lowest since reported rate since February 2021. Having just returned from the grocery store and the gas pump, I certainly did not feel like there had been any decline in prices, so I decided it was time to brush up on my understanding of economic data reporting and get a better perspective. Here is what I learned.

The CPI (Consumer Price Index) is the key economic metric that measures the average change in the prices that urban consumers pay for a basket of consumer goods and services. The percentage change in CPI over a period of time is the most widely used measure of the inflation rate. The basket of consumer goods and services measured in the CPI calculation is comprised of a range of items that consumers like you and I typically purchase to maintain a given standard of living. Generally, the types of items in the basket fall into one of these eight major groups: food and beverage, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. (256)

It is important for consumers to remember that the many items in the CPI basket (approximately 450) will not experience price changes simultaneously, nor will the changes be of the same magnitude. Seasonality, unexpected recalls, health crises, and severe weather are just some examples of what may impact the supply and demand of goods and services, translating to changing prices. Given the range of items in the basket of goods and services included in the CPI, I now have a better understanding of the need to curb my immediate expectations regarding inflation data, and I better understand why my experience purchasing limited items did not quickly translate into immediate savings at the grocery store and the gas station.

This concept can perhaps best be understood by the following example, which illustrates why everyone will not experience inflation in the same manner. Imagine that most of the income in your household is devoted to purchasing food and beverages, and everything else in the CPI basket declines except for food and beverages. The reported decline in the inflation rate will not have a major impact on your household because you purchase mostly food and beverages, which did not decline.

As you consider who to vote for in November, I suggest that you remember the various goods and services in the basket that comprise the CPI and your individual household income and spending patterns and give great thought to which leader(s) might be able to positively impact the industries, workers, and concerns related to consumer pricing.