Rising gas, diesel prices driving up inflation

You're watching Fox 9 All Day. My goodness, we've got sticker shock just about everywhere at the moment, from the pump to the grocery store, and just about everywhere in between. New numbers out show that wholesale inflation is running really hotter than expected right now, with a massive spike in energy costs. And joining us now to talk more about these numbers is University of Minnesota law professor James Coleman. He teaches energy law and is known to many as the Energy Law Prof in fact if you go online and search Energy Law Prof you'll find his great YouTube page and his Twitter account too i was on them today and just so much great content there um james thanks so much for joining us deeply appreciate this thanks so much all right let's look at some of the big picture numbers here wholesale inflation rose 6.3 percent year over year last month in september this is the biggest annual increase that we've seen since December of 22, prices jumped 1.3% in a single month from August to March. And diesel, Pat Kessler and I were just talking about this, well over six bucks an hour and how it's affecting the farm economy right now. The biggest takeaway, James, seems to be the energy prices. Is that kind of what's in the driver's seat of all of these price increases right now? Yeah, I think what we're looking at currently is about a little bit more than half of inflation for consumers is attributed to those rising energy prices. And so consumers are paying more for gasoline at the pump. And then as you said, those very elevated diesel prices are contributing to higher prices across our economy because you need diesel to produce those agricultural commodities, the food that we eat, and you need diesel for the trucks to get it to market and so that contributes to higher prices around the economy. James as we see those prices now go above six dollars a gallon I mean my goodness we're at like 6:32 right now as those prices rise typically what are you seeing how quickly does that show up at Target at Walmart at at our grocery store and maybe the restaurant that we eat at? Yeah it can show up almost immediately because of course when any store is looking to sell their products they're considering not just what it costs to bring that product to the store but also what it would cost to bring you know more into the store so in other words they have to consider not just the what they paid but also what they would have to pay to fill up the shelves again and so those prices you can think about them as, in a certain sense, being an inventory management tool. If they expect prices to be higher in the future, they may slow down selling things today by raising prices a little bit so that they don't run out and face a shortage in the future. You know, are we at the point yet where we're going to start to see transparent surcharges? I know a lot of small businesses had to do this a number of years ago when fuel prices started to spike so um like for instance um if i'm going to get some flowers delivered um all of a sudden there are a lot of businesses were saying hey look our delivery fee used to be ten dollars we're now raising it to sixteen dollars um as a way of trying to um build in those those new costs that they have but also trying to be transparent with their customers as well is that hey hopefully when prices come down we can we can raise this this surcharge that we're adding on or eliminate the surcharge as well yes certainly uh you know and that's really about the you know trying to manage that relationship with a consumer and explain to them why prices are higher but whether or not the business breaks those out it simply is the fact that as those energy prices rise prices will go up throughout the economy so even if you don't see that line item surcharge there you know that that's contributing to the higher prices that you're paying for a variety of goods. And James, I know that as a law professor, you are really good at looking at how policy impacts affect certain markets, especially the energy market. Are there certain policies right now that can be changed or modified or perhaps tweaked a little bit that would help with energy prices? Well, there's no easy fix. And we're already looking at a number of changes we could potentially make. So people talk about things like gas tax holidays or holidays on both sort of state and federal taxes on gasoline and diesel. But of course, that revenue is also crucial for infrastructure and for state government that are often facing their own challenges about raising revenue. So that's not an easy fix, but that can provide some relief. The other things that we look at are releases from the Strategic Petroleum Reserve. We're already doing that, and so there's only a limited extent to which we can continue to do that. And a lot of the high costs are driven by the high refinery utilization. So basically the refineries that turn that oil into gasoline and diesel are running flat out. And so there's not that much room. There's not really that much spare diesel and gasoline out there to help ease these high energy prices. Yeah, we're running at full capacity just about on the refining side, aren't we? Yeah, exactly. And it's a challenge because, of course, the U.S. is also supplying international markets. I mean, this is as challenging as it has been here in the United States and in Minnesota. Frankly, we aren't experiencing the extremely elevated prices that have been appearing in many other parts of the world, including Asia and Europe. So one of the challenges is, James, is if we strip out those rising energy costs, inflation, core inflation, is still up. And what does that tell you about the broader economy at the moment? Well, you know, inflation can be up for a variety of reasons. I mean, certainly one reason is that we have had a lot of uh investment in in different areas that kind of a lot of construction whether it's you know for data centers for new manufacturing etc and so as well as certain sometimes just maintenance on things that we probably should have been maintaining for a long time and so that uh can be you know good news story because the you know economy providing uh providing jobs hopefully providing some wage increases but there's a lot of it that's clearly, you know, unhelpful and eating away at existing wages, etc. And so that's the tough act that the Federal Reserve faces in trying to, you know, not damage the economy too much, but ensure that prices don't get out of control, you know, as they were in 2022 and as we've seen sometimes in the past. And you just mentioned the Federal Reserve. They've got some tough choices to make here coming up um in a few more weeks um what are your thoughts on that do they have any choice but to raise at least the key interest rate a little bit more well i think there's a lot of uncertainty and if i if i had uh and nobody outside of the Federal Reserve knows what they're going to do and maybe true fair enough within the Federal Reserve yeah but but i will i mean i do think there's a particular challenge here which is that the the federal Reserve isn't able to address some of the things that are increasing costs here. The Federal Reserve can raise the cost of borrowing money, and that can slow the economy down a little bit. But it doesn't provide more investment to oil and gas production or to refineries. It doesn't help produce more energy to lower costs. It doesn't completely reopen the Strait of Hormuz or ease global flows, and it's not going to change some of the challenges we're having with global refining capacity. And so there's not really, the Federal Reserve doesn't have the easy levers to help get prices under control, and that's why I think they're facing such a difficult decision. All right. I want to bring it back here to Minnesota for a moment with the energy costs in particular because my goodness we're going to have one of our first frosts of the season coming up perhaps this weekend we're going to get down into the low 30s on saturday morning and which means winter is right around the corner and heating costs are always a prime concern here as we start heading into these months with energy costs rising so much What should we be thinking about as consumers who are trying to meet those bills coming up? Yeah, well, one fortunate thing is that over time, we've started to have more separation between what happens with oil and fuel prices, with diesel and gasoline prices, and what we have with natural gas and electricity prices. And natural gas being where a lot of Minnesota consumers would get their winter heating from. And so that means that we hope that there won't be too much bleed through of those higher prices for liquid fuels into the prices that we pay to heat our homes with natural gas and maybe to some extent heat pumps or electricity. And so that is a much bigger problem for parts of the country like New England that rely on heating fuel, very similar to diesel. Yes, exactly. And so they will have much bigger problems with affordability of heating this winter. My hope is that here in the Midwest, because we're still experiencing pretty modest natural gas prices, that we wouldn't suffer as much from that. But certainly if you layer that on top of the higher prices that we're already paying for gasoline and diesel at the pump, that would be a big problem. James, a lot of our farm areas, rural areas in Minnesota heat with propane. What are you seeing on that? So fortunately, propane often tends to be a little bit more associated with those natural gas prices. I mean, propane being a natural gas liquid. The basic distinction I would draw is liquids tend to trade in international markets because they're so easy to put on a tanker and send overseas. And so we can send diesel overseas. we can send oil overseas. So if there's a disruption anywhere in global markets where people aren't getting enough oil, aren't getting enough diesel, aren't getting enough gasoline, we'll respond to that in the United States, and they will sometimes purchase away our oil or gasoline or diesel. So we ship oil, gasoline, and diesel around the world. You're the most important diesel exporter in the world right now. By contrast, if you take propane, natural gas, etc. We are also an important exporter of natural gas and propane, but that is so much more expensive to transport overseas that that trade in natural gas and propane that we send overseas doesn't mean that we have, you know, there's still a big difference between prices here and prices elsewhere, whereas prices for gasoline, diesel, and oil tend to move together around the world. So, yes, it may have some impact on propane prices here in Minnesota and in the United States. But my hope is that it wouldn't be nearly as big as the impacts that we're seeing in the diesel, gasoline and oil markets. Oh, my goodness. James, I learned a lot. Thanks a lot. We deeply appreciate the conversation here. This is James Coleman, otherwise known as the Energy Law Professor. You can find him on YouTube at Energy Law Prof and on Twitter under the same handle. Your content is great online. I've really enjoyed going through it today, James. Well, thanks so much, Tim. I appreciate it. It's great talking to you. All right, you have yourself a great afternoon and great weekend. You're watching Fox.