Rising Demand Just One Factor in Inflation, Supply Chain Woes
October 15 2021 - 12:37PM
Dow Jones News
By Dan Molinski
U.S. officials have blamed inflation and supply chain problems
on surging demand amid a recovering economy, but data suggest an
uptick in demand may not be a huge factor, and some analysts
instead point the finger at labor shortages and extreme government
spending.
While demand is rising, data on oil consumption--a key gauge of
overall demand--show the increase in demand was far greater in the
second half of last year. This year has actually seen a slow and
seemingly manageable recovery in demand as the U.S. continues its
year-long rehabilitation from economic collapse in March through
June of 2020.
White House Press Secretary Jen Psaki, who has been grilled all
week on why prices are surging so quickly, why some grocery store
shelves are bare, and why ships filled with goods sit anchored at
sea, suggested these are signs of an improving economy now in
recovery mode from coronavirus.
"We're at this point because the unemployment rate has come down
and cut in half, because people are traveling and because demand is
up and because the economy is turning back on," White House Press
Secretary Jen Psaki said, adding later: "It was inevitable there
would be economic challenges coming out of the pandemic."
But the U.S. was taking its biggest steps toward economic
recovery more than a year ago. Data from the EIA shows U.S. oil and
fuel consumption of 19.5 million barrels a day in the first quarter
of 2020 collapsed to just 16.1 million barrels a day in the second
quarter as the pandemic hit. But 70% of that drop in demand was
immediately recovered by the third quarter of 2020 when oil
consumption climbed back to 18.5 million as many
economically-important states such as Texas and Florida reopened
their economies and shrugged off Covid restrictions.
And since that big bounce in demand in the third quarter of
2020, U.S. oil demand has slowly and steadily recovered to 20.2
million barrels a day, the U.S. government agency says. Those
slow-and-steady trends are similar when looking at overall energy
consumption that includes electricity consumption and natural gas
consumption.
Yet prices for products such as food and gasoline have seen
their biggest increases in just the past couple weeks, and annual
consumer inflation hit a 13-year-high of 5.4% last month, according
to data Wednesday. AAA says the average nationwide price for a
gallon of regular gasoline hit a seven-year-high of $3.31 a gallon
today, a nearly 5% rise from just two weeks ago. Outsized fiscal
spending in Washington may be a big reason.
"The rise in inflation has common characteristics such as
supply-chain problems and surging commodity prices, but we also
suspect that the U.S. economy has been run a little too hot in
these circumstances, and that's created more of an inflation
problem," said Steve Barrow at Standard Bank. "While U.S. growth is
stronger than most of its peers, it has been 'bought' by huge
fiscal stimulus. The government has spent over 25% of GDP so far on
direct fiscal stimulus; a figure that's well above just about all
other nations. In the eurozone, for instance, the eight largest
countries have spent a simple average of 9%."
Barrow noted that the U.S. current account deficit has grown a
massive 84% since the pandemic, while the eurozone has actually
seen its surplus rise by 39% over the same period. And he said
stronger U.S. growth hasn't seen more workers pulled into jobs.
"Right now, U.S. employment is some 97% of its pre-Covid levels
while the figure for the eurozone is nearer 99%," Barrow said.
Write to Dan Molinski at dan.molinski@wsj.com
(END) Dow Jones Newswires
October 15, 2021 12:22 ET (16:22 GMT)
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