Prior to the midterm elections, Democrats are seeing a glimpse of hope in international markets as inflation is likely to decline in upcoming months.
Just recently, the report of the labor department put inflation at 41 years high, but that does not show the whole picture.
Inflation is Declining: Democrats Get a Chance in Midterms
Currently, the world is still living in a pandemic, and things can change extremely fast during a pandemic. This pace can be so fast that most often, even the latest reports, like in the case of the labor department report, cannot portray the true picture of inflation.
In the literal sense, the consumer price index stands at 8.5 percent today, but that is just a half picture. This report did not incorporate the latest trend in late March, which records that inflation is declining steadily.
But it still doesn’t mean that inflation would not be an issue in the upcoming month, as consumers are just likely to get slight relief.
Now the question arises what are some of the factors responsible for reducing inflation. Firstly the major reason for inflation was the surging oil prices, which skyrocketed the price of virtually every commodity.
However, now the oil market is recovering, and the impacts are likely to be transferred to the consumers.
Why is Inflation Declining Now?
Biden’s two decisions are responsible for lowering oil prices. First, he announced the release of one million barrels of strategic oil reserves on a daily basis for a period of six months.
Secondly, the president has lifted a ban on ethanol sales for summer to provide cheaper fuel to the masses.
This came at the time when Russian oil imports were banned by the world, and most countries were either trying to get energy independence or finding different countries to feed their oil needs.
These days crude oil markets are reaching the level of the pre-Ukraine war, which manifests that the worst has over as the world adapts to the new normal of the war.
Another encouraging part of the whole picture is that the supply chain crisis is likely to ease soon. The bullwhip effect is rolling back, which is an encouraging sign for economic growth.
The bullwhip effect is the supply chain phenomenon, according to which even a small distortion at the consumers’ end can trigger a whole lot of crisis at the supplier end. Take the example of tissue papers, for instance.
During the pandemic, the demand for toilet paper increased as people started working from their homes. These were the different papers used compared to those in offices.
This, in turn, impacted the demand issues as stores started giving more orders which stressed manufacturers to increase their consumption. This is the bullwhip effect, and it is declining with the passing days.
The Bullwhip effect played a leading role in crippling the economies worldwide during the pandemic recession.
The CEO of FreightWaves, a company that deals with supply chain issues, claimed that manufacturers are currently sitting on the large inventories that they amassed during the shortage.
So now they have to lose their inventories by selling already existing stuff, as supply chain bottlenecks are loosening.
This is due to the fact that companies are not in a position to accumulate more stuff, and they have to take care of their already existing stuff.
When this existing inventory is being lost, they are likely to bring prices down.
But there are some factors that are moving in the opposite direction. For instance, great resignation is still not a thing of the past and is impacting the country’s pricing at large.
As long as this problem persists, the issues for supply and chain will remain intact, and the country will continue seeing higher prices due to increased wage demands.
Thus Democrats may get a momentary relief before the midterm elections that are necessary to keep the party moving amid the persistent turmoil, but they will need to develop a long-term strategy to make a permanent fix.