Rising diesel prices have helped fuel inflation - and we're about to see how much worse it could get

By Myra P. Saefong

Consumer inflation just came in hot. Thursday will provide more clues on the impact of record diesel prices ahead of the midterm elections.

The consumer-price index came in hot Wednesday. The producer-price index, due Thursday, is likely to show the impact of rising diesel prices.

Wall Street wasn't taking Wednesday's hot consumer-price index lightly. And on Thursday, the producer-price index will be the last reading to help investors gauge the toll of surging diesel prices in the United States before the midterm elections.

The August PPI data showed diesel prices jumped 24% month over month and 77% year over year, said Matt Miskin, co-chief investment strategist at Manulife John Hancock Investments. That large an increase tells the economy and markets that there is a "serious problem that has developed."

Diesel is the primary fuel of the global supply chain, and its impact on consumers can fall under the radar, even as producers see an immediate hit when prices surge.

The Iran war and refinery bottlenecks have become more critical issues the longer the conflict drags on. Yet one factor keeping the price of a barrel of oil on Wall Street within a tolerable range has been the hope that the conflict might end soon. Similarly, some companies have been hoping to avoid passing on higher fuel costs to consumers for as long as possible. But time might be running out.

"The reason why energy shocks are so pernicious for inflation is because energy serves as an input for just about everything in the economy," said Alex Jacquez, senior vice president of policy, advocacy and research at Groundwork Collaborative, an economic think tank. Consumers can eventually expect to see the rise in diesel prices flow through to transportation costs, which drive up the cost of goods that move by truck, he said.

While the impact of diesel prices in the economic chain may show up gradually, prices have changed surprisingly quickly in recent weeks. Diesel prices at the pump rose to their highest level on record at $6.528 a gallon on Sept. 22, according to AAA. Diesel was at $6.30 Wednesday, up from $6.23 a month ago and more than 70% above the year-ago price of $3.657.

"Nobody buys a gallon of diesel for their kitchen, and everybody pays for it anyway," said Rob Carpenter, founder and chief intelligence officer at Tea Technologies, which runs a trucking safety and risk platform.

Diesel runs the combines that harvest wheat, the trucks that haul the wheat to the grain elevator, the trains or barges that move the wheat, the trucks that take the flour to the bakery, and the trucks that drop the bread at your grocery store, he said.

In the Northeast, diesel also comes out of the same refined-oil pool as the heating oil used to heat homes in the winter, Carpenter said. "Every one of those steps pays the higher price, and every business in the chain marks up the cost it was handed."

Clues from the PPI

In other words, diesel is a part of modern life - and that matters in terms of overall inflation, as the latest PPI reading, set for Thursday, is likely to show.

"Diesel pieces are like the lifeblood to the industrial economy," said Miskin at Manulife, and the rise in those prices shows up more in the PPI than in the CPI. On Wednesday, the U.S. Bureau of Labor Statistics reported that the CPI was up 0.6% in September, an increase higher than the 0.4% seen in August. The annual rate was 3.7%.

PPI data can help provide an early clue to where consumer prices are headed. Those data have yet to show the full impact of the diesel price increases, Miskin said, but September and October are likely to have meaningfully high year-over-year readings.

Most contract freight in the U.S. already carries a fuel surcharge pegged to the Energy Information Administration's weekly diesel average, said Tea Technologies' Carpenter, who spent more than 25 years as a commercial truck driver and freight broker.

When that EIA average changes, it lands on the shipper's next invoice. The shipper then prices it into what it charges the retailer, and the retailer prices it into what the consumer pays, he said. That's why diesel shows up in producer prices before consumer prices, Carpenter said.

Bernard Yaros, lead U.S. economist at Oxford Economics, told MarketWatch that a strong rise in energy prices in early October is likely to lift September PPI by 0.6%. In August, it rose 0.4%.

Diesel prices will show up immediately in certain PPI components, but the pass-through of higher diesel and freight costs to consumer prices can be "lagged and irregular, since it depends on factors such as competitive pressures, contractual arrangements and pricing power," Yaros said.

The longer diesel cost pressures persist, the more likely they'll be "baked into contracts between carriers and shippers and eventually find their way into consumer prices," he said.

Relief efforts

Diesel prices have remained high despite efforts by the Trump administration to boost available supplies.

President Donald Trump signed an executive order on Oct. 5 to temporarily allow agricultural fuel to be used by regular trucks and vehicles in a move to offset near-record-high diesel prices triggered in part by the Iran war.

Trump then announced on Oct. 9 that Russia has agreed to supply roughly 4.8 million metric tons of diesel to the U.S. and global marketplace.

Trump also declared on Oct. 11 an "energy ceasefire" between Russia and Ukraine, although there was no sign that such an agreement was actually in place.

These efforts to provide relief won't have much of an impact, and certainly not anytime soon, Carpenter said. "Supply is the problem, and none of the three adds a gallon of U.S. refining capacity this quarter."

Greg Robb contributed.

-Myra P. Saefong

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10-14-26 1207ET