High inflation imposes not just financial but also cognitive costs

America's recent example underlines how price instability could pain households in ways that policymakers might not notice

- NIRANJAN RAJADHYAKSHA

The recent US election that carried Donald Trump back to the White House with a strong mandate underlines a point that was perhaps forgotten by political leaders in many rich countries over a long era of stable prices: Inflation matters.

No election result is monocausal. It is usually a combination of economic, political and social factors, but the rising cost of living seems to have been an important ingredient in the US results. The Trump victory was bookended by the end of Conservative Party rule in the UK and the collapse of the ruling political alliance in Germany.

There are a few lessons for economists as well. The most important one is that voters think about price levels rather than just the rate at which they are changing. The price of a cup of coffee or a bag of groceries has materially changed over the past four years in many rich countries. Even tourists feel it. So inflation, or the rate at which prices are going up, may have been brought to heel; but the inflation spike that came before has left the price level way above what voters are comfortable with.