Diesel prices top $5. Here's what it means for what you buy
Diesel costs could extend financial pain beyond the gas pump, economists said.
The average price of a gallon of diesel fuel topped $5 this week as a resumption of large-scale fighting between Iran and the United States renewed fears of a worldwide oil shortage.
A run-up in diesel costs -- which is also affected by Ukraine's attacks on Russian refining operations -- threatens to extend financial pain well beyond the gas pump, pushing up prices for everything from groceries to at-home deliveries to moving services, some economists told ABC News.
Diesel fuel powers many of the trucks, trains and ships that transport products across a vast global supply chain. The price hike for any individual item would likely be modest, but the pileup of extra costs could weigh on wallets, they said.
"This will hit anything that's shipped," Michael Sposi, a professor of economics at Southern Methodist University, told ABC News.
Last month, oil prices fell to their lowest level since before the late February outbreak of the Iran war. That drop came after a preliminary agreement to end the war included provisions aimed at reopening the Strait of Hormuz.
An exchange of strikes between the U.S. and Iran in recent days has cast doubt over the staying power of that agreement, however, driving up crude prices.
The U.S. resumed its naval blockade of the strait on Tuesday, reversing a key commitment made as part of the deal. That move came after Iran fired upon oil tankers in the strait, which facilitates shipping of about one-fifth of the global oil supply.
The disruption has pushed global crude prices above $86 a barrel, which marks a rise of about 22% since the start of the war. Oil accounts for about 4 of every 10 dollars in the price of diesel fuel, the U.S. Energy Information Administration says.
The average price of a gallon of diesel stands at $5.05, AAA data showed, marking an increase of 4% over the past week. Diesel prices remain lower than where they registered a month ago, however.
Since diesel is the lifeblood of the supply chain, a rise in fuel costs will likely result in higher prices charged by wholesalers in response to elevated transport expenses, some analysts said. In turn, many retailers may pass those costs along to shoppers, raising prices on shelves.
Every dollar spent on food, for instance, usually includes 3 or 4 cents that stem from transportation costs, Omair Sharif, founder of Inflation Insights, previously told ABC News.
The price effects will likely show up in agricultural goods such as fresh fruits and vegetables, since their diesel-intensive production and short shelf life leaves them vulnerable to increases in diesel costs, Sposi said. Other perishable products like grains could also prove price sensitive, he added.
Prices for fruits and vegetables are rising at an annual pace of 5.3%, putting their inflation rate at nearly twice that of food at home overall, federal government data showed.
Jason Miller, a professor of supply chain management at Michigan State University, said consumers may also face higher prices for services like home movers and at-home delivery, since they will likely pass along added diesel costs.
"Any type of fuel surcharge associated with some form of delivery will make things more expensive," Miller said.
To be sure, some prices have proven relatively resilient, despite the upward pressure from diesel costs, some analysts said. Food-at-home prices climbed 2.7% in June compared to a year earlier, registering below overall inflation and maintaining their pace from the previous month.
"I'm a little surprised by some of the inflation numbers not being higher," Sposi said, pointing to possible steps taken by wholesalers to eat into profits rather than raise prices for consumers.
Overall prices rose 3.5% in June compared to a year earlier, marking a retreat from a year-over-year inflation rate of 4.2% in the prior month, federal government data released on Tuesday showed.
Still, inflation stands markedly higher than the Federal Reserve's target rate of 2%.
President Donald Trump on Tuesday touted the inflation report.
"Prices are way down -- prices are coming way down. And we're going to bring them much lower yet," Trump told reporters.
Diesel costs may continue to rise amid ongoing unrest in the strait and skittish oil investors wary of a global shortage, Miller said. But, he added, an easing of tensions in the region could bring down diesel prices, as it did last month.
"The biggest wild card now is what happens in the Strait of Hormuz," Miller said.
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