The Fed’s Beige Book is Mentioning Diesel a Lot More Than Before. What That Could Mean for Consumer Prices.

Americans watching gasoline prices for signs of inflation may be underestimating the cost of the diesel used to fuel broader parts of the economy, including the transport of merchandise, operation of farm equipment, and delivery of supplies to businesses.

The Federal Reserve's October Beige Book contained 21 references to high diesel costs, compared with just two in the previous edition. The jump points to growing concern among businesses about an expense that can reach consumers in different ways.

The Beige Book gathers observations from businesses and community organizations across the Fed's 12 districts. Its interviews and questionnaires provide an early look at pressures that may take time to appear in national statistics.

In the Dallas district, diesel was the most frequently cited source of rising costs. Retailers expressed concern, although most said the increases had not yet prompted them to raise selling prices.

Agricultural contacts in the district reported that diesel prices had nearly doubled from a year earlier, while fertilizer prices were up 10% to 25%. The national summary described fuel surcharges carrying higher costs through supply chains.

In the Boston district, produce prices had remained steady despite elevated diesel expenses. Contacts warned that could change when trucking contracts were renegotiated. Restaurants facing broader cost pressures were simplifying menus instead of charging customers more.

Existing contracts may delay further increases as firms in several districts expected prices to rise as agreements expired and they renegotiated arrangements covering supplies and deliveries. A business still paying an older contracted rate could face a larger bill when that protection ends. That creates a potential lag between rising energy costs and the price a customer eventually pays.

A Montana timber business said fuel expenses had "more than doubled" on a project covered by a contract signed months earlier. The company was completing work under an agreement made before those expenses climbed.

Other businesses described customers already making difficult choices. A Montana ranch and home supply retailer reported that shoppers were buying the same number of items or fewer, while their baskets cost more. A vehicle repair business said customers were choosing which problems to fix instead of authorizing every repair.

Those accounts help explain why passing along another delivery surcharge can be difficult. Customers have limits, and businesses must weigh recovering their costs against losing sales.

Workers can also feel the pressure before a store changes its price tags. The Minneapolis report described grocery employees losing hours as higher wholesale costs squeezed store profits. Some underemployed workers needed second or third jobs to cover expenses. The report did not attribute those wholesale increases solely to diesel.