From NPR · · 2m
Diesel tops $6 a gallon, and your groceries know it
Diesel just set another US record, and the cost is already creeping onto food, packages and everything hauled by truck.
In brief
Diesel just set another US record, and the cost is already creeping onto food, packages and everything hauled by truck. Diesel is the hidden tax on almost everything you buy, and this shock is being priced in as permanent, not temporary. Originally reported by NPR.
A new record at the pump
The US national average for diesel hit $6.05 a gallon on Friday, up from $5.85 a week earlier and $3.70 a year ago, according to AAA.
Washington's war with Iran
The US and Israel launched their war against Iran in late February, when diesel averaged about $3.76. Supply chain disruptions across the Middle East, especially the Strait of Hormuz bottleneck, sent it climbing.
Crude is back above $100
Brent and US crude both passed $100 a barrel this week for the first time in months. Brent traded above $105 Friday, up from roughly $70 before the war.
Not a record in real terms
Adjusted for inflation, 2008's diesel peak would be about $7.20 today and 2022's record about $6.56. Today's price still hurts, it just isn't unprecedented.
Gas is up too
Regular unleaded averaged $4.29 a gallon Friday, up from $2.98 before the Iran war, though still under the 2022 peak of nearly $5.02.
Why diesel climbs faster
Households can drive less when gas gets expensive. Freight networks that move goods worldwide have almost no immediate substitute for diesel, so demand barely bends.
Fuel is a chunk of food cost
Diesel runs farm equipment, fishing boats, trains and delivery trucks. The Independent Grocers Alliance puts fuel at roughly 15% to 30% of the total cost of food.
Refrigerated goods go first
Michigan State food economist David Ortega says items hauled cold see prices rise first. In July, overall grocery prices rose 2.7% from a year earlier, but seafood jumped 7% and fresh fruit 4.9%.
The squeeze arrives late
Freight contracts and retailer margins absorb the first hit. The pain reaches shelves once those contracts reprice and fuel surcharges kick in.
“Early on, much of the cost increase gets absorbed along the supply chain through existing freight contracts and retailer margins.”
Surcharges on your packages
Amazon added a temporary 3.5% fuel and logistics surcharge for some third-party sellers in April. UPS, FedEx and USPS have tacked fees onto some shipments too.
The new normal
S&P Global no longer expects Middle East crude production to reach prewar levels by the end of 2027. Nigeria's diesel is up over 90% since February, Indonesia's nearly 87%.
“The market is not returning to calm, it is adjusting to the new normal.”
The one thing
Diesel is the hidden tax on almost everything you buy, and this shock is being priced in as permanent, not temporary.
