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


(END) Dow Jones Newswires

October 15, 2021 12:22 ET (16:22 GMT)

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