If you feel strongly about the economy one way or the other, it may have as much to do with your political affiliation as what the economic data actually shows. Negative or positive feelings about the economy can be neatly sorted by political affiliation, as seen in the University of Michigan’s influential monthly survey of consumer sentiment. This is a relatively new thing: Democrats’ and Republicans’ views on the economy were more or less in line with each other until former President Donald Trump’s election in 2016, but since then have diverged significantly. Now, under a Democratic president, Republicans are much more likely to be pessimistic about the economy, just as Democrats were under Trump—and it might be making them more susceptible to inflation, according to the wealth management arm of UBS, a global investment bank: “The two groups appear to be living on different planets.”
“Negative reported sentiment may make consumers more vulnerable to profit-led inflation,” Paul Donovan, chief economist at UBS, wrote in a note Friday. “Profit-led inflation episodes occur when consumers are told a story about why price increases are necessary. Consumers’ willingness to believe the story allows some companies to sneak in a profit margin increase.”
