Inflationary pressures are being fuelled by rising gasoline prices, giving governments and central banks around the world a headache. They’re a double whammy for incumbents in countries where elections are approaching.
While the November mid-term elections in the United States are the most visible example of fuel prices influencing politics, upcoming elections in Asia may also be affected. Indian state elections are currently underway, and South Korea will hold a presidential election in early March. In the next months, there will be a general election in Australia and a contest for Japan’s upper house.
Oil’s steady march toward triple digits has already forced incumbents to take political action. In November, India reduced retail taxes on gasoline and diesel, and prices have been unofficially frozen since then. South Korea imposed a temporary 20 percent reduction in fuel levies from October to April, which could be extended, while Japan is subsidizing refineries that produce motor fuel.
According to Sonal Varma, chief economist for India, governments in nations where wage levels trail behind inflation are most vulnerable to a gasoline-induced political backlash.
As oil recovered from the depths of the pandemic, retail gasoline prices in Australia have climbed by 80% since early May 2020, while they have risen by 37% in Japan. The large state-owned fuel wholesalers in India are expected to raise prices dramatically after the elections next month.
In five states, including Uttar Pradesh, the largest with over 200 million inhabitants, voters will go to the polls in elections that will last until early March. Inflation, which is above the central bank’s tolerance ceiling of 6% in January, indicates that Prime Minister Narendra Modi’s Bharatiya Janata Party faces a difficult task. Rural wages haven’t caught up, growing only 3.31 percent from a year ago in December, according to Bloomberg Economics data.
Scott Morrison, Australia’s prime minister, must call a general election by the end of May, and polls suggest he could lose by a landslide. Consumer confidence has suffered as a result of rising fuel costs, with the Reserve Bank of Australia predicting that core inflation will surge above 3%. According to data from the statistics agency, average wage levels increased by 2.2 percent from a year ago in the third quarter of 2021.
More than half of the seats in Japan’s Upper House are up for grabs in a referendum in July, potentially jeopardizing Prime Minister Fumio Kishida’s hopes of retaining power. Household inflation expectations are at their highest level since 2008, although average monthly cash wages fell marginally in December compared to the previous year. More programs to mitigate the impact of rising oil prices on households are being discussed, according to Kishida.
“Since 2021, high gasoline prices have been a continuous challenge in the global inflationary environment,” said Vandana Hari, founder of Vanda Insights, a Singapore-based oil market research firm. “Of all the categories of consumer products, fuel costs are the most politically charged.”
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