Apr 8, 2022 - Economy

Stealth fuel costs drive inflation

Percentage change in the price of U.S. energy commodities
Data: FactSet; Chart: Jared Whalen/Axios

We're all familiar with "pain at the pump," the narrative that launched a thousand local news segments. But there's more than one fuel product that can be pumped, and the extent of the pain can vary.

Driving the news: The price surge for industrial fuels such as diesel and jet fuel — byproducts of petroleum refining, known as distillates — have far outstripped the rise in price for consumer-facing products such as gasoline.

Why it matters: The surge in these acts as a stealth inflationary force, pushing up prices of a wide range of goods — anything that's trucked in — and services, such as air travel.

State of play: The difference in prices among these fuels crisply illustrates the economic concept of "elasticity," or how sensitive demand is to changing prices.

  • Gasoline demand is much more elastic than distillate demand. That's because consumers can, in many instances, drive less, if gasoline prices get too high.
  • Industrial fuel like diesel, however, is less sensitive to climbing costs, because those costs can often be passed along to an end customer elsewhere.
  • Because of this, the oil market depends, in part, on high gasoline prices to dissuade people from driving — known as "demand destruction" — to allow overall energy markets to adjust supply and demand.

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