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Commodity & Gas Prices are Decreasing & Mitch McConnell is Starting to Lose Sleep; What Comes Next

Senate Minority Leader Mitch McConnell's worst nightmare is that gas prices and inflation decline before the midterm elections this Fall. Republicans are betting that high prices will help them win back the House and Senate. But what if those economic factors turn around over the next four months? There are already signs that prices have peaked.

The factors that led to rising inflation and record-high gas prices around the world are starting to subside. The price of gas has declined by almost 30 cents over the last month and all types of commodities such as cotton, copper, and lumber are declining. Home prices cooled for the first time in months and rents are falling, although both remain elevated. The global supply chain is improving with rising retail inventories and far fewer ocean freighters stacked up in West Coast ports waiting to be unloaded.

This improvement is a natural consequence of supply and demand factors and the intervention of the US Federal Reserve [Fed] and other central banks globally. We are entering the disinflation part of the economic cycle when price inflation begins to slowly decelerate. As prices increase, demand slowly wanes to the point that sellers of goods and commodities have to pare back price increases to move inventory. Interest rate hikes by the Fed make it more expensive to buy on credit which further reduces demand. And, the possibility that the Fed will tighten credit too much and cause a recession is also depressing the futures market in oil and other commodities.

But, if the Federal Reserve does its job right, inflation will decline without triggering a recession or a deflationary spiral. Deflation is bad because it signals that demand for goods and services has cratered and that suppliers and manufacturers have to cut production and lay off workers to reduce a supply glut in the economy. That type of recession is difficult to correct. The Fed appears likely to aggressively hike interest rates one more time and then hope for a soft landing.

No one is ready to promise that prices won't spike again as the result of some new Russian provocation or a particularly bad hurricane season in the Gulf of Mexico, but market analysts and economists are a bit more upbeat these days. Economic indicators are improving despite the possibility of a short recession and this week's jobs report showed that the labor market is still quite strong. If we can avoid mass layoffs, consumer demand should quickly rebound in the third and fourth quarters as inflation subsides. That could dramatically change voters' attitudes as they go to the polls in November.

#economics #news #politics

By: Don Lam & Curated Content

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