Diesel fuel prices have increased substantially in recent months, rising to $6.32 per gallon as of Tuesday from $3.76 per gallon on February 27, according to data from AAA. This represents a 68% increase, which exceeds the 47% rise in gasoline prices over the same period. The primary driver of higher diesel costs is the Iran war, which has reduced oil supplies flowing through the Middle East and damaged regional refining infrastructure. Russia’s conflict in Ukraine has also contributed to elevated prices, as Kyiv has targeted Russian refineries and Moscow has restricted diesel exports.
Unlike gasoline price increases, which directly impact consumers at the pump, diesel price hikes affect the economy more indirectly through transportation and supply chain costs. Diesel fuels trucks, trains, and ships that move goods to retail locations, and it also serves uses in farming, manufacturing, and heating. Economists note that businesses typically pass these elevated fuel costs to consumers through higher prices for groceries, delivered packages, and other goods.
Mark Zandi, chief economist at Moody’s, explained that freight costs are accelerating rapidly, with fixed trade routes preventing businesses from reducing distances to offset fuel expenses. Michael Reid, head of U.S. economics at the Royal Bank of Canada, stated that lower and middle-income consumers feel such increases disproportionately. Zandi estimated that each $1 increase in diesel per gallon typically raises overall inflation by approximately 0.1 percentage points when sustained, potentially adding about 0.25 percentage points to inflation overall.
Goldman Sachs projects that elevated diesel prices could increase food prices by 0.2 to 0.4 percentage points cumulatively in coming months, with diesel accounting for 5% to 10% of average input costs across crops. The investment bank forecasts diesel prices will remain elevated through 2027. In response to rising prices, the Group of Seven nations agreed on Friday to release strategic diesel stocks, and President Donald Trump signed an executive order Monday temporarily allowing broader use of cheaper red-dyed diesel typically reserved for agricultural operations.
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