The Big Picture

Briefing.com Summary:

*Democrats' midterm election victories suggest voter frustration with the rising cost of living was a decisive factor.

*Elevated inflation and negative real wage growth have squeezed household purchasing power, despite relatively favorable core inflation readings.

*With the personal savings rate near a 15-year low, consumers have limited financial flexibility to maintain their standard of living.

We have to talk politics this week, and our intention is to do it without sounding political. That will be easier done than said by sticking to political facts and offering an ad hoc analysis of what those facts mean.

The first political fact is that the Democratic Party won the midterm election.

Votes in some races are still being counted, but Democrats will hold at least 54 seats in the Senate, having gained seven seats, and at least 253 seats in the House, having gained 41 seats. Meanwhile, they picked up five seats in gubernatorial races, most notably in Texas, Ohio, and Georgia.

That is the end of our political facts.

What follows is a very brief, ad hoc analysis of the election outcome.

Many voters were frustrated by the higher cost of living. That shouldn't have been a surprise to anyone looking at the latest Consumer Price Index (CPI) or anyone recognizing that average hourly earnings growth is not keeping pace with inflation.

Bingo Bango Bongo!

Comparatively, a 2.6% year-over-year increase in core CPI, which excludes food and energy, looks and sounds better than a 3.7% increase in total CPI, as was seen in the Consumer Price Index report for September. 

Neither is particularly encouraging relative to the Fed's 2.0% inflation target, which is geared toward the PCE inflation rate. That measure is currently running at 3.6% overall and 3.1% excluding food and energy.

The friendlier core CPI number, meanwhile, is cold comfort for consumers who don't have the benefit of excluding food and energy costs from their monthly expenditures, any more than they have the ability to exclude shelter costs.

If you exclude food, energy, and shelter, then—bingo bango bongo!—you have CPI inflation running at 2.0%. Sorry, but it doesn't work like that in the real world, even if it does in the wonky world of financial markets.

We spoke to this point in an October 2025 column that, ironically, also discussed the takeaways of the September CPI report that year. We averred that it was a K-shaped report that was good for Wall Street but not good for Main Street.

That sentiment appeared to carry over at the ballot box, as consumers didn't get enough relief on prices in the interim due to various factors ranging from tariffs to supply constraints to the Iran War.

The midterm election appears to have been, in large part, a pocketbook vote that captured an all-inclusive view of inflation pressures that can't be explained away by excluding food and energy.

Keeping It Real

Consumers' frustration with higher prices boiled over at an inopportune time for incumbent candidates, with real wages turning negative in the months leading up to the election. In other words, the pace of wage growth did not keep up with the pace of inflation.

The inference is that, if employed consumers want to maintain their standard of living, they may have to turn increasingly to personal savings or debt to do so. Some have the capacity to do that, but others don't.

The personal savings rate as a percentage of disposable personal income is just 3.8%, which is near a 15-year low, excluding the COVID stimulus years.

Briefing.com Analyst Insight

Importantly, the problem for consumers isn't simply that inflation remains elevated. It's that years of rising prices have established a much higher cost of living, and the recent deterioration in real wages has made that burden even harder to bear.

That reality influenced the outcome of the midterm election, which went in favor of the Democratic Party just as the 2024 election went in favor of the Republican Party.

Voters delivered a change in political control. The constant between the two elections is that the overall cost of living was a swing issue, as voters made sure to count the cost of food, energy, and shelter in their vote.

The election is over now, but the takeaway is clear: inflation remains an economic and political problem regardless of which party holds power, and voters want it solved.

--Patrick J. O'Hare, Briefing.com

(Editor's Note: the next installment of The Big Picture will be published the week of November 16.)