Key Takeaways
- Diesel prices hit record highs, increasing transportation and business costs.
- Producer prices rose, with diesel driving a significant share of the increase.
- Higher freight costs could reach consumers if businesses pass expenses through.
J.P. Morgan is highlighting record U.S. diesel prices as an inflation risk after government data showed a sharp rise in fuel and freight costs in August.
Diesel Prices Reach Record Levels
The national average for on-highway diesel reached $6.529 a gallon for the week ended Sept. 21, up 24.4 cents from the previous week and $2.78 from a year earlier, according to the U.S. Energy Information Administration.
J.P. Morgan Wealth Management said the average reached $6.53 on Sept. 22, the highest level on record, according to AAA. The firm said diesel’s role in freight, agriculture, construction and heavy industry makes its price movements important beyond the fuel market.
“Diesel is a core input for freight, heavy industry, agriculture and construction,” J.P. Morgan Wealth Management said in a Sept. 23 analysis. “Higher diesel prices can show up in inflation through business costs first, then potentially affect consumer prices over time.”
The increase also extends beyond diesel itself. Higher fuel expenses can raise transportation costs for companies moving goods between factories, warehouses, distribution centers, and stores.
Producer Prices Show Early Cost Pressure
Government data already show signs of pressure moving through the production chain. The Bureau of Labor Statistics said its Producer Price Index for final demand increased 0.4% in August, while final-demand goods prices rose 1.1%.
Diesel was a major contributor. Diesel prices jumped 24.1% in August, accounting for more than one-third of the increase in final-demand goods prices, according to the BLS. Diesel also accounted for nearly two-thirds of the monthly increase in prices for processed goods used as intermediate inputs.
Freight costs also moved higher. The BLS reported that prices for truck transportation of freight increased 2% in August, adding another cost pressure for businesses that depend on road transportation.
J.P. Morgan said producer-price data can indicate cost pressures earlier than consumer inflation because businesses may face higher transportation and operating expenses before those increases reach shoppers. “Diesel can show up in producer cost data before it becomes a consumer inflation story,” the firm said.
Higher Freight Costs Could Reach Consumers
The effect on consumers will depend on how companies respond to higher fuel bills. Businesses can absorb some costs, negotiate freight contracts, reduce other expenses, or pass part of the increase to customers.
Uber Freight said diesel prices rose 24 cents per gallon in the week ending Sept. 21, while average fuel surcharges reached 89 cents per mile, up 16 cents in three weeks. The company said rising fuel costs offset declines in some other freight costs.
The EIA data show the pressure is not uniform across the country. The Sept. 21 average was $6.68 a gallon in the Midwest, $7.46 on the West Coast and $8.25 in California.
For investors and businesses, the key question is whether elevated diesel costs persist long enough to affect broader prices. J.P. Morgan said companies with heavy transportation exposure could face higher expenses, while the eventual effect on consumers will depend on demand, contracts, and businesses’ ability to pass costs through.
