In the US, where Donald Trump swept the board last week, it was the experience of sharply increasing essentials prices, from food to energy, that glued together the Republicans’ new electoral coalition. About 75% of those voting Republican reported that they had faced “hardship” or “severe hardship” as a result of price rises; only 25% of Democrats said the same. When Trump asked if Americans felt better now than they did four years ago, the answer for most was a clear no.
Price surges are having political impacts. In elections this year in three of the world’s largest economies, incumbent parties were hammered by voters angry about their helplessness in the face of the steeply rising cost of essentials.
In India, Narendra Modi, widely assumed to enjoy a total dominance of domestic politics in the world’s fastest growing major economy, lost his parliamentary majority. Food price inflation in the country has been running at an average of 8% for months, with the price of rice soaring to its highest point in a decade, despite a government export ban in July (which has subsequently been lifted). A quarter of voters cited price rises as their main concern, the highest since the early 1980s, and well over half thought the government had handled inflation badly.
In Japan, the conservative coalition, led by the Liberal Democratic party, lost its majority in a snap election. The price of rice had risen by 63% over the previous 12 months, the biggest increase since official records began, the result of the falling value of the yen pushing up imported fertiliser prices – and, crucially, the “brutal summer heatwave” that affected rice quality and shrank harvests. After decades of low inflation and its associated low wage rises, the sharp increase in the price of staple foods has been a rude political shock.
It’s the same story across the world. The price of olive oil in British supermarkets has gone up by as much as 90% during the last two years, the direct result of drought and extreme heat throttling harvests across the Mediterranean. Butter prices have risen more than 80% across Europe, as climate change-linked bluetongue fever has hit cattle herds. Orange juice prices have doubled in a year in the US, as extreme heat, floods and droughts have knocked out fruit harvests in Brazil and Florida. Easter eggs were smaller and more expensive this year than last as a deadly flood-drought combination hammered cocoa production in west Africa, where 60% of the world’s beans are grown. Torrential rains and floods have hurt harvests across Europe, and the UN’s Food and Agriculture Organization has reported that world food prices reached an 18-month high in October.
As climate change begins to bite harder, it’s not only about the appalling drama of floods and deadly storms – it’s the steady grind of failing production systems and, behind them, the opportunity for profiteering from the soaring prices of essentials like food and energy. Our economic institutions and political systems are not built for a world like this.
Yet our economic modelling often fails to capture the experience of rising prices. Last year, official US figures suggested that voters there were living in the “greatest economy ever”, with rising GDP and inflation rapidly falling, which is why Kamala Harris’s defeat has been condescendingly blamed on the “vibecession” – implying that voters feel bad for no good reason. But you can’t eat GDP. And if basic foods shoot up in price and stay high, every pound or yen or dollar you have goes a little bit less far than it used to. Official inflation figures don’t capture this raw experience of squeezed living standards and the sense of permanent loss this points towards, since they aim to report on the average price changes in a “basket of goods” bought by the “average” household. But there is no such thing as an “average” household: it’s a statistical construction. Actual household consumption varies substantially.
So while this basket of goods certainly contains food and energy, with a share based on how much, on average, a household will spend on both, it also contains items like the “average” amount of air travel abroad, or flatscreen TVs. Some households will buy one or both in any given month, of course, and so their prices matter to those households. But for the 27% of US citizens who have never travelled to another country, the cost of air travel abroad is an irrelevance. And although flatscreen TVs have fallen spectacularly in price, most of us don’t rush off to buy a new one every month. Yet those TV price changes are still influencing the inflation figures. In other words, there’s a disconnect between the headline numbers and most people’s experience of the economy. Worse, this disconnect can vary systemically with income: poorer households have to spend proportionately more on essentials, and so they often experience inflation far more strongly than headline figures suggest.
The tools intended to combat inflation are worse than useless. Jamming up interest rates in London or Washington doesn’t make more olives grow in Spain or cocoa beans magically sprout in Ghana. Perhaps this disconnect between the policy levers and economic outcomes didn’t matter too much when price rises were limited. For two decades before Covid-19, a combination of rapid industrialisation in China and east Asia, improved farming productivity, falling transport costs, and (as we failed to appreciate at the time) a relatively stable global climate, delivered consistently falling prices of goods, both agricultural and manufactured, with global food prices reaching an all-time low in the early 2000s. Nor did it matter that interest rate changes would have little meaningful impact when inflation hovered fairly reliably around central banks’ target levels.
The supply shocks of the 2020s have brought this period to an end. The world we live in now is one where geopolitical conflict intersects with the climate crisis to produce repeated, sometimes dramatic, shocks and shortages. Price rises on one side are all too often matched by outright profiteering on the other: the five agribusinesses that control 70% of the global trade made all-time high profits during 2020-22, while Oxfam reports that 62 new “food billionaires” were created.
Three steps are needed. The first is to claw back the wealth of the new profiteers through wealth taxes in the first instance, which would free up resources that could be invested. The second is to kill the sacred cow of conventional economics. When inflation spikes as a result of supply shocks, jamming up interest rates merely increases the misery. Debt repayments soar – but inflation isn’t necessarily restrained. We can take inspiration here from countries like Spain, which introduced well-designed controls on essential prices last year. Targeted price controls and buffer stocks of essentials like staple foods, of the kind recommended by economist Isabella Weber and her collaborators, can work. The third step is the longer term task of rebuilding our supply systems for those essentials. This would mean localising production, offering more support to farmers and communities adapting to a climate-shocked world, shortening supply chains and maximising their resilience, rather than prioritising profit.