Rising demand is just a factor of inflation, supply chain problems

By Dan Molinski

U.S. officials have blamed inflation and supply chain issues on surging demand amid an economic recovery, but data suggests that increased demand may not be a huge factor, and some Rather, analysts point the finger at labor shortages and extreme government spending.

As demand increases, data on oil consumption – a key indicator of aggregate demand – shows that the increase in demand was much larger in the second half of last year. This year has in fact seen a slow and seemingly manageable recovery in demand as the United States continues its rehabilitation a year after the economic collapse from March to June 2020.

White House Press Secretary Jen Psaki, who has been asked all week about why prices are rising so quickly, why some grocery store shelves are bare and why ships full of goods are anchored at sea, suggested these are signs of an improving economy now in recovery mode from the coronavirus.

“We are at this point because the unemployment rate has gone down and halved, because people are traveling and because demand is increasing and the economy is restarting,” said Jen Psaki, press officer. from the White House, later adding: “It was inevitable that there would be economic challenges as a result of the pandemic.”

But the United States took its biggest strides towards economic recovery more than a year ago. EIA data shows that U.S. oil and fuel consumption of 19.5 million barrels per day in the first quarter of 2020 collapsed to just 16.1 million barrels per day in the second quarter when the pandemic hit. hit. But 70% of that drop in demand was immediately recouped in the third quarter of 2020, when oil consumption fell back to 18.5 million, as many economically important states such as Texas and Florida reopened their economies and ignored Covid restrictions.

And since this big rebound in demand in the third quarter of 2020, the demand for oil in the United States has slowly and steadily recovered to reach 20.2 million barrels per day, according to the US government agency. These slow and stable trends are similar when looking at overall energy consumption which includes electricity consumption and natural gas consumption.

Yet the prices of commodities such as food and gasoline have seen their biggest increases in just the past two weeks, and annual consumer inflation has hit a 13-year high of 5.4% per month. last, according to data from Wednesday. According to AAA, the national average price of a gallon of regular gasoline hit a seven-year high of $ 3.31 per gallon today, an increase of almost 5% from just two weeks ago . The inordinate budget spending in Washington can be a big reason.

“Rising inflation has some common features such as supply chain issues and soaring commodity prices, but we also suspect that the US economy has been a bit too hot under these circumstances, and this created more of an inflation problem, “Steve Barrow told Standard Bank. “Although US growth is stronger than most of its peers, it has been ‘bought’ by massive fiscal stimulus. The government has so far spent over 25% of GDP on fiscal stimulus. direct; a figure well above almost any other country. In the euro area, for example, the eight largest countries spent a simple average of 9%. “

Barrow noted that the U.S. current account deficit has grown 84% since the pandemic, while the eurozone has actually seen its surplus increase by 39% over the same period. And he said stronger U.S. growth hasn’t pulled more workers into the job.

“Right now, employment in the United States is around 97% of its pre-Covid levels while the figure for the eurozone is closer to 99%,” Barrow said.

Write to Dan Molinski at [email protected]

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About Natalee Broderick

Natalee Broderick

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