Elections: Study: Unexpectedly high inflation strengthens parties on the margins

According to a study by the Kiel Institute for the World Economy (IfW), parties on the left and right can expect more votes in the early federal elections simply because of the recently unexpectedly high inflation and the difficult economic situation.

Inflation and growth have deviated significantly from expectations in the past three years, said study co-author and IfW researcher Jonathan Federle. “Overall, support for radical parties on the left and right edges is likely to have increased by two percentage points.”

365 elections examined in 18 industrialized countries

In its study “Inflation Surprises and Election Outcomes,” the IfW said it analyzed 365 elections in 18 industrialized countries between 1948 and 2023. The result: An inflation shock of ten percentage points during a legislative period combined with below-average real wage growth would lead to an increase in the vote share of populist and extremist parties in the following election by 2.8 percentage points. Unexpected changes in gross domestic product also increased approval.

On the other hand, positive surprises reduced the number of visitors. If growth turns out to be one percentage point higher than expected, the vote share of radical parties would fall by around 0.25 points. Wage increases also had a dampening effect. If they compensate for the inflation shock, the increase in votes for parties on the left and right would only be 1.3 percentage points.

Extreme parties benefit from high price increases

These results therefore apply to times of unexpectedly high inflation, such as the oil crisis of the 1970s or the price shock after the corona pandemic, and explain part of the popularity for Donald Trump in the USA as well as for the AfD and the BSW in Germany.

“Extreme parties benefit when price increases are higher than expected and workers and other economic actors have had no opportunity to prepare for inflation through appropriate wage increases,” Federle said.

If inflation rises unexpectedly faster than real wages, this will also increase dissatisfaction among the population. According to the study, negative inflation surprises have a significant impact on the number of demonstrations and strikes against government policies. The number of demonstrations increases by around eight percent if actual inflation is one percentage point above expectations.