Diesel’s surge is starting to push other prices around. Here’s how

The skyrocketing price of diesel is plain for Americans to see anytime they fuel up their cars, SUVs and pickup trucks, though only a fraction of US drivers own a diesel-powered vehicle so they may think they are dodging that massive sticker shock. Think again. Wholesale inflation data from the Labor Department on Thursday showed US producer prices climbed far more than expected in September — auguring more stiff inflation at the consumer level in the weeks and months ahead as those costs get passed along. Evidence of the impact of high energy prices, record-high diesel prices in particular, was all over that 34-page readout. Why? Because, as Oxford Economics wrote recently: “Diesel is the workhorse fuel of the economy.” Here are some of the ways diesel is driving up producer inflation and how that threatens to drive up a range of consumer costs further soon. GETTING IT TO YOUR DOOR If you own it, eat it or drink it, a truck was involved somewhere along the way in bringing it — either to where you picked it up or to your house. The vast majority of those vehicles in the US goods transportation fleet run on diesel. So when diesel prices more than double as they have over the last year, the cost of moving all that stuff around goes up and soon those shippers begin demanding higher prices for that service. In September, the Producer Price Index’s gauge of the cost for truck transportation of freight was up by 19% year over year, the most in just over four years. What’s more, those freight transportation costs are responding much faster to the surge in diesel prices than they did to the price surge following the COVID-19 pandemic. That’s because the overall economy is in a much better position now than it was then, with the US jobless rate at a still historically low 4.2% supporting robust demand. Also the absolute price of the fuel is more than twice what it was as the pandemic recovery began. FARM TO TABLE Diesel is critical to farming, powering the tractors and harvesting equipment involved in producing food and again in fueling the trucks that take it to grocery stores and restaurants. While end-user consumer food cost increases in both PPI and the Consumer Price Index in September were pretty benign, costs further back in the food supply chain are rising fast. The average of food inputs at stages one and two of what PPI calls “intermediate demand” – which reflect producers’ own energy costs and the energy costs embedded in producing key things farmers use like fertilizers and other agricultural chemicals — was up 15.6% from a year earlier in September, again by the most in about four years. Prices for energy-sensitive feed products like corn, hay and hayseeds and oilseeds all shot up by more than 25% year over year. If history is any guide, households should brace for yet higher grocery store prices in the months ahead. “We expect a pickup in food inflation later this year,” Oxford’s senior US economist Matthew Martin said after the PPI report. ENERGY & CPI The US economy is far less energy-intensive than it was during the oil shocks of the 1970s, but it is still has an impact on prices overall — and more so the longer they stay high. PPI categories like materials for manufacturing — inputs that are themselves absorbing higher diesel costs to produce and deliver — are rising at double-digit annual rates. Producers must take the hit to their margins or pass the costs along. CHRISTMAS IS COMING The diesel surge threatens to make the coming holiday season more expensive — and is already a factor in one of the season’s biggest staples: Toys. Prices for toys — exposed to higher shipping costs among other things — rose in September by the most ever month over month.