What $5 diesel fuel means for the U.S. economy
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The price of diesel fuel has surged above $5 a gallon in the U.S., the highest in four years, creating new inflationary pressure on anything Americans buy that relies on truck transport — which is to say, pretty much everything.
Driving the news: The average retail price of a gallon of diesel was $5.04 Tuesday, AAA says, up from $3.65 a month ago.
- That amounts to a 38% one-month rise in the price of diesel, surpassing even the 30% rise in the price of regular unleaded gasoline over that span.
- The Iran war has choked off supplies of crude oil and other commodities from the Persian Gulf, driving up global prices.
State of play: Most Americans have little direct exposure to diesel prices; gasoline-fueled (and, increasingly, electric or hybrid) cars are the norm.
- Many houses, especially in the Northeast, rely on heating oil, a close chemical cousin of diesel. Thankfully, spring is arriving.
- The indirect effects of higher diesel prices, however, are enormous, flowing through to essentially all goods, at a time when supply chains are already stressed by higher tariffs.
- Tractor-trailers, trains and many ships rely on the fuel, so the price of bringing virtually all goods to market has risen markedly in the space of a few weeks.
Between the lines: That isn't likely to result in immediate price increases, but will shape the pricing decisions companies make in the weeks ahead — especially for heavy, bulky and inexpensive goods for which transportation is a large share of their total cost.
- That means that higher diesel prices could thus drive core inflation measures higher, not just the headline measures that include the direct cost of higher energy.
- The Federal Reserve will have a harder time looking through those price hikes if they show up in core goods, as opposed to just in retail gasoline or electricity prices.
