Why fuel inflation ‘whack-a-mole’ may complicate Fed’s job in months ahead

But the price of diesel fuel, which powers the semi-trailers and freight trains that move goods from the producer to the consumer, has risen more sharply. Jet fuel prices have also been on the rise.

Here’s a look at the run-up since June 30 in key wholesale prices for gasoline, diesel and jet fuel, provided by Oil Price Information Service, or OPIS, which, like MarketWatch, is a Dow Jones Company.

In the 40 days from the end of June through Wednesday, jet fuel is up 31.6% at the Gulf Coast and 30.3% at New York Harbor, the OPIS figures show. Diesel has risen 29.1% at the Gulf Coast, 32.9% in Los Angeles and 30.3% in New York Harbor. The wholesale gasoline price is up 19% at the Gulf Coast, 9.1% in New York Harbora nd 8.8% in L.A.

The increases for diesel and jet fuel are nothing short of “stunning,” said Tom Kloza, global head of energy analysis at OPIS.

The U.S. July consumer-price index, due Thursday morning, is expected to show a 3.3% year over year rise, up from the 3% reading in June, according to economists polled by The Wall Street Journal. The core CPI rate, which strips out volatile food and energy prices, is expected to slow though to 4.7% from 4.8%.

Related: July CPI to come in close to expectations as U.S. settles into final mile along the road to lower inflation, traders say

While inflation has slowed sharply from a peak of 9.1% in the summer of 2022, the highest in more than four decades, it remains high. Fuel prices have retreated from year ago levels — drivers nationally were still paying a touch over $4 a gallon for gasoline this time last year. That said, Kansas and Oklahoma on Wednesday joined Iowa, Georgia, Florida and Washington in seeing their average gasoline prices rising above the year-ago level, according to OPIS.

“It’s like playing whack-a-mole,” Kloza said.

The recent run-up in fuel prices is seen potentially slowing the fall in inflation to the possible consternation of Federal Reserve policy makers, some of whom have indicated they believe interest rates have risen far enough.

While core inflation readings strip out food and energy costs, rising fuel expenses can influence the headline figure as producers attempt to pass on higher input prices.

Commodity prices overall were up around 7% in July, “presenting upside risks to the CPI via gasoline, jet fuel, utilities, and food at supermarkets and dining establishments,” said Jose Torres, senior economist at Interactive Brokers, in a note.

“With services and shelter remaining hot, commodities inflecting higher and goods prices declining, this Thursday’s CPI is likely to come in at 0.4% for the headline and 0.3% for core, above the consensus expectation of 0.2% on both fronts,” he said.

The main culprit, meanwhile, is supply rather than burning demand, OPIS’s Kloza told MarketWatch in a phone interview.

Oil refinery outages tied to recent heat waves across the U.S. have been blamed in part for rising prices, while analysts have pointed to weak implied gasoline demand figures in weekly Energy Information Administration figures. Talk of a “freight recession” has plagued the transportation industry.

Rising crude-oil prices
BRN00,
-0.21%
are a main driver, Kloza said, boosted by production cuts led by Saudi Arabia. The Saudis last week said they would extend a crude-oil production cut of 1 million barrels a day that began in July through September. Oil futures have rallied over the last six weeks, with West Texas Intermediate crude
CL00,
-0.23%
hitting a 2023 intraday high in Wednesday’s session.

The U.S. summer driving season comes to an end at Labor Day holiday weekend in early September. Kloza expects gasoline prices to be materially lower in 60 days compared with now, but fuel prices may remain stubbornly high overall.