When Will Gas Prices Finally Drop for Consumers?

How Long Will Consumers Have to Pay Higher Gas Prices?

Higher gasoline and diesel prices pushed U.S. inflation higher in September and began spreading into transportation, warehousing and food costs, according to economic data released Oct. 15.

The latest figures show how energy costs can move through the economy. Fuel prices affect consumers directly at the pump, but they also raise the cost of operating trucks, freight trains, warehouses and other parts of the supply chain. Those costs can eventually be reflected in the prices of groceries and other goods.

For professional truck drivers and carriers, the data provide a broader picture of the pressure created by rising diesel prices. Fuel is a direct operating expense for long-haul trucking, while higher transportation costs can also affect freight rates and the price of products moving through distribution networks.

Gasoline drove much of September’s inflation increase

The Consumer Price Index rose 0.6% in September, its largest monthly increase in five months. The annual inflation rate increased to 3.7%, up from 3.4% in both July and August and above the 3.6% market expectation cited in the data.

Gasoline was the primary contributor to the monthly increase. The gasoline index rose 9.1% in September on a seasonally adjusted basis, accounting for more than half of the overall monthly gain. Before seasonal adjustment, gasoline prices increased 6.5% during the month.

Over the 12 months through September, gasoline prices were up 34.2%, compared with a 27.4% increase in August. The overall energy index rose 5.2% during September and was up 20.4% from a year earlier. Fuel oil prices increased 74.2% over the year, while natural gas prices rose 5%.

Electricity prices increased 0.2% in September, while the natural gas index declined 0.3% for the month.

Diesel costs add pressure to freight operations

Unlike passenger vehicles, many of the trucks and freight trains moving goods across the country depend heavily on diesel fuel. When diesel becomes more expensive, carriers face higher costs on every mile, particularly on long-haul and high-mileage operations.

Those added expenses do not stop at the fuel island. Higher diesel prices make shipping more expensive and can increase the cost of moving freight between manufacturers, distribution centers, warehouses, retailers and consumers. Warehousing and other transportation-related services can also face higher operating costs as energy prices rise.

The economic data do not identify a single cause for every price increase, but the timing shows energy costs beginning to affect other areas of the economy. Wholesale food prices rose 1.2% from August to September, the largest monthly increase since February. Higher transportation costs may have contributed to that increase.

Wholesale prices generally reflect what businesses pay before products reach consumers. As a result, increases in wholesale food and transportation costs can take time to appear in grocery prices, depending on inventory levels, contracts and other business expenses.

Retail spending increased, led by fuel purchases

Consumers continued to spend in September despite the higher prices. Retail sales rose 0.8% from August, exceeding economists’ expectations. Much of the increase came from gas stations, where spending jumped 6.4% as motorists paid more for fuel.

Spending also increased in other categories. Sales at restaurants and bars rose 1.1% from the previous month. However, excluding gas-station sales, retail sales increased only 0.2%, and part of that gain reflected higher prices rather than a large increase in the amount of goods purchased.

For truck drivers, that distinction matters because stronger dollar sales do not necessarily mean stronger freight demand. When prices rise, consumers and businesses can spend more money without purchasing more products. That can make headline sales figures look solid while the underlying volume of goods moving through the supply chain grows more slowly.

Underlying inflation also moved higher

Excluding food and energy, core consumer prices rose 0.3% in September and increased 2.6% from a year earlier. The core measure is closely watched because food and energy prices can change sharply from month to month.

Several categories posted notable monthly increases, including shelter, used vehicles, car rentals and leisure expenses. Shelter costs rose 0.4%, used-vehicle prices increased 0.7% and car rentals climbed 5.4%. Sporting event tickets and other leisure expenses also recorded increases.

Food prices in the consumer price index were unchanged overall during the month. Food away from home rose 0.2% in September and was up 3.5% over the year. Full-service meals increased 3.8% annually, while limited-service meals rose 3.2%.

The Federal Reserve’s inflation target is 2%, making the 3.7% annual headline rate a significant distance above that goal. The September figures also showed that the impact of higher energy costs was not limited to gasoline purchases. It was beginning to appear in business costs and wholesale prices across the supply chain.

How long the pressure lasts depends on fuel prices

Whether consumers continue paying higher prices at the pump and for transported goods will depend in large part on the direction of oil and fuel markets. The September data show what happened during a month of sharply higher energy prices, but they do not establish how long those increases will continue.

For trucking, the immediate issue is the cost of diesel. For consumers, the effects may appear gradually through fuel purchases, grocery prices, restaurant bills and other goods that travel by truck before reaching the final buyer. The latest numbers show that those costs are already moving through the supply chain, even if the full impact has not yet reached every household.