Diesel prices drive inflation as Treasury yields track fuel costs, Trump announces Russian diesel deal

U.S. diesel prices averaged $6.28 per gallon this week, still about 71% higher than a year ago, according to the American Automobile Association. The rise follows a sharp increase in crude oil prices, which are up 56% from a year earlier after refining capacity was hit in the Middle East and Russia.

Analysts note that diesel’s role as a key input for manufacturing, agriculture and logistics has amplified its impact on inflation. “This is why products have been trading at double the price of crude during the past few months, something that has never happened before. Ultimately, diesel and gasoline drive inflation, not crude oil,” wrote Amrita Sen, director of market intelligence at Energy Aspects, in the Financial Times.

The higher fuel costs have also pushed expectations for a more hawkish Federal Reserve, with 10-year Treasury yields moving in line with diesel prices for the first time, Sen added.

In response, President Donald Trump signed an executive order on Monday to postpone a 24-cent per-gallon federal diesel tax until the end of the year. He also announced on Friday a deal with Russian President Vladimir Putin to secure Russian diesel shipments, beginning with more than 300,000 tons now and additional deliveries through the coming months.

Critics argue the measures will have limited effect on consumer prices. Michael Lynch, a distinguished fellow at the Energy Policy Research Foundation, told the Associated Press that importing Russian diesel is unlikely to lower overall costs, noting that existing customers would simply be displaced.

A recent Politico poll found that only 10% of undecided voters said a $1-per-gallon drop in gas prices would make them more likely to support a Republican candidate, suggesting limited electoral benefit from the fuel-price initiatives.