Inflation and economic perception are key factors in elections worldwide, as incumbent governments — often in their first term — are getting tossed from power.

The Democratic Party’s failure to return to government, despite a humming economy that is breaking records, is a “real warning sign” that voters will take out their economic frustrations on the Albanese government at the next federal election.

David Smith, an associate professor at the United States Studies Centre, said the perception that the American economy is in dire shape was a huge contributor to Donald Trump’s victory.

“This is something they experience every time they buy groceries or fill up the car with petrol and they took it out on Harris,” he said.

“Polls show most Americans feel they are worse off than four years ago. Only a small proportion think the country is on the right track economically.”

For the first time since the data was first recorded in 1905, every incumbent government facing the electorate in 2024 has lost vote share.

Australia’s recovery from an inflationary period — which was not unique when compared to the rest of the world — has been sluggish, trailing other OECD countries.

Better off?

Greg Jericho, lead economist at the Australia Institute, said that the results of the United States election should be “a real warning sign to us”.

“If you look around at what happened in other countries like Great Britain and France, and even state governments when inflation has been rising, it is very difficult for the party in power to avoid getting the blame,” he said.

“Even though the economic data suggests that the American economy is doing well, data doesn’t help people who are looking at their bills and thinking that they are paying a hell of a lot more than they used to.”

Despite strong economic numbers, voters touted the economy as their number one issue during exit polls.

Cost of living also remains the biggest concern for Australians, followed by housing, healthcare and the economy, according to the Ipsos Issue monitor.

Jericho said that economic factors that influence voters also go beyond just inflation and cost of living.

“The main reason people are struggling is because wages have not risen at the same rate as the cost of living and people’s living standards have declined,” he said.

“We weren’t going out and spending like mad, in fact, companies are doing very nicely out of rising inflation and consumers and households are the ones wearing the pain.”

He said that the government and economists must also factor in the impact of interest rate hikes, which are often ignored in inflation numbers.

Next election

If this trend continues in Australia, then the next federal election might not be won or lost on social issues or the environment, but feelings around the economic future of the country.

The Liberal Party, traditionally seen as better economic managers, have eagerly attacked the Albanese government’s record. Photo: AAP

Jericho said it is easy to attack an incumbent government by asking if voters are better off than they were three years ago.

“If people don’t feel that is the case, then you have the ability to persuade them that things will be much better under you from the opposition,” he said.

“It highlights, in my view, that governments need to be a lot more proactive at the start and be doing things like energy rebates right from the get-go.”

Other incumbent governments— like Olaf Scholz’s collapsing first-term German coalition — are experiencing similar voter backlash over their country’s economies.

It could prove a stark warning to the Albanese government that two budget surpluses or inflation figures with a two in front of it may not be enough to convince voters to return them to power.