Diesel prices in the United States have jumped roughly 60% since late February and hit a record $6 a gallon, reviving inflation and recession fears. Central banks are reacting: the ECB has already raised rates and traders now price a high chance of another Fed hike this week.
Diesel spike revives inflation fears
Crude oil has extended its gains this week as the war in the Middle East widens and global oil stocks keep shrinking. Diesel prices in the U.S. have climbed about 60% since late February, the Wall Street Journal reported, and touched an all-time high of $6 per gallon last week. The paper noted, however, little sign yet that fuel costs are spilling into broader prices, pointing to a 2.4% core inflation reading for August from the Labor Department.
That gap may not last. Businesses tend to absorb energy costs gradually rather than pass them on at once, but a 60% jump in diesel is hard to fully absorb over time. Central banks are watching closely as a result.
Fed and ECB move toward tighter policy
Traders are betting the Federal Reserve will act soon: some 90% of traders in a CME Group survey expect a 25-basis-point hike this week, The National reported. The European Central Bank has already moved, raising rates by 25 basis points last week and warning that Middle East conflict-driven inflation pressures are set to stay well above target for an extended period.
Economist Sung Won Sohn framed the risk bluntly in a Substack post: "Energy inflation does not stay at the gas station." He added that businesses may initially absorb higher energy costs but will eventually pass more of them to consumers if prices stay elevated.
Supply losses keep mounting
The war between the United States and Israel against Iran has entered its seventh month, with neither side signaling willingness to compromise. The conflict is broadening: Yemen's Houthis knocked out Saudi Arabia's East-West pipeline in a drone attack last week, a loss that threatens up to 4% of global oil supply, according to Reuters.
That loss adds to earlier supply losses from the Middle East and Russia, particularly in diesel fuel, just as the Northern Hemisphere heads into peak winter demand season. Workarounds such as alternate pipelines and stock draws have limited capacity, and stocks in some places are already running low.
Source: Oilprice.com
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