Consumers are already feeling the pinch from rising gasoline prices, but economists say another fuel 鈥?diesel 鈥?is quietly pushing up the cost of goods on store shelves in a more subtle way.

According to AAA data, diesel prices have surged 68% since the outbreak of the Iran war, outpacing the rise in gasoline. Economists say that with inflation still elevated, this will drive up shelf prices for everything from food to physical goods of all kinds.

"This will deliver a fresh squeeze to consumers, with low- and middle-income households hit especially hard," said Michael Reid, chief U.S. economist at Royal Bank of Canada.

How big is the diesel price increase?

AAA data shows the average diesel price was $3.76 per gallon on February 27, the day before U.S. and Israeli strikes on Iran, and had risen to $6.32 per gallon by Tuesday. In September, the national average diesel price broke through $6 per gallon for the first time.

The Group of Seven 鈥?France, Canada, Germany, Italy, Japan, the United Kingdom and the United States 鈥?released reserve fuel on Friday to address rising fuel prices. The Trump administration had been pressing Europe to release diesel reserves as an alternative to a U.S. export ban aimed at pushing oil prices lower. President Trump temporarily relaxed restrictions on the use of red-dyed diesel, a cheaper fuel normally limited to agricultural use, in an effort to bring down record fuel costs.

Economists believe the Iran war is the main driver of the oil price spike: the conflict has disrupted crude oil supplies from the Middle East, pushed oil prices higher and damaged local refining infrastructure 鈥?the very facilities that turn crude into diesel, gasoline and jet fuel. Economists add that the Russia-Ukraine conflict has also played a contributing role, as Ukraine's strikes on Russian refineries prompted Moscow to impose a diesel export ban.

Which sectors are affected by diesel prices?

According to AAA data, the average gasoline price on Tuesday was $4.37 per gallon, up about 47% from $2.98 per gallon on February 27. Economists explain that gasoline price increases are more visible to consumers, felt immediately at the pump, while diesel's impact is more hidden.

"Gasoline is a direct expense 鈥?you pay for it and put it in your tank; diesel's impact is transmitted indirectly," said Mark Zandi, chief economist at Moody's.

A Goldman Sachs research note dated September 21 said diesel is used by trucks, trains and cargo ships to move goods to stores, and beyond transportation it is also widely used in agriculture, manufacturing, and residential and industrial heating. Economists say businesses will pass on higher diesel costs to end consumers through higher goods prices.

"Everything that moves by truck is affected by higher diesel prices, from groceries to anything delivered to your door by UPS or Amazon," Zandi said. He cited a popular summary: "Cars run on gasoline, but the economy runs on diesel."

Reid said freight costs are climbing rapidly, at a pace comparable to the period after COVID lockdowns were lifted, with many modes of transport depending on diesel. Trade routes are largely fixed, so businesses cannot save fuel by shortening distances, meaning higher diesel input costs are likely to ripple through the supply chain and ultimately land on consumers.

How much will prices rise?

Zandi said there is a lag in price transmission, and the full impact may take six months to a year to reach consumers. Based on rule-of-thumb estimates, if diesel prices rise by a sustained $1 per gallon, overall inflation will be pushed up by 0.1 percentage points.

Zandi said diesel has risen by roughly $2.50 per gallon since the Iran war began, which would typically add about 0.25 percentage points to the PCE personal consumption expenditures price index. The PCE is a key inflation gauge for the Federal Reserve, whose long-term goal is to keep annual inflation around 2%; in August, the measure stood at 3.4% year over year.

"Goods prices will rise slowly in the coming months 鈥?not a one-time jump, but a steady, gradual climb," Reid of RBC said.

A Goldman Sachs report dated September 21 estimated that higher diesel prices will add a cumulative 0.2 to 0.4 percentage points to food prices in the coming months. Across various crop production activities, diesel accounts for an average of 5% to 10% of input costs.

"If diesel prices continue to rise, there is further upside risk to food prices. Farmers mostly buy large amounts of fuel during the autumn harvest season and often stock up on fuel in winter as well," Goldman Sachs said.

Reid believes the G7 announcement on releasing strategic diesel reserves is unlikely to meaningfully bring down high prices. "If the Iran conflict keeps crude oil and energy prices elevated for a prolonged period, the risk that energy prices feed significantly into consumer goods will only grow."