Apollo Economist Warns Record Diesel Prices Pose Greater Inflation Threat for Fed
Apollo Global Management chief economist Torsten Slok warned on September 25 that record-high diesel prices pose a greater inflation threat than the Federal Reserve currently anticipates. Slok argues that diesel-related transportation costs are highly inelastic due to their essential role in moving goods across retail supply chains and data center construction, meaning price increases are passed on to businesses and consumers, spilling over into core CPI categories that typically exclude energy. This comes as the Fed sets monetary policy following its first rate hike since 2023, with inflation still above the 2% target.
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Apollo economist warns US diesel surge may fuel core inflation, complicating Fed policy
Apollo Global Management Chief Economist Torsten Slok warns that the 83% surge in US diesel prices to $6.50 per gallon poses a more serious inflation threat than the Federal Reserve currently recognizes. Unlike gasoline, which directly impacts energy costs, diesel is widely used in transportation, retail supply chains, and data center construction, meaning higher costs can spread into core CPI categories beyond energy. Slok argues this 'secondary transmission' makes the diesel shock different from temporary energy spikes, potentially making core inflation more persistent and complicating the Fed's monetary policy after its 2023 rate hike. He notes that AI investment is currently boosting US GDP by about 1 percentage point, offsetting some economic drag. Slok suggests that a resolution to the US-Iran conflict could lower oil prices and reduce inflation pressure, potentially allowing the Fed to avoid further rate hikes, but this outcome remains highly uncertain.
Read sourceApollo Economist Warns Record Diesel Prices Pose Greater Inflation Challenge for Fed
Torsten Slok, chief economist at Apollo Global Management, warned that record-high diesel prices pose a greater inflation threat than the Federal Reserve currently anticipates. In an article published by格隆汇 on September 25, Slok argued that diesel-related transportation costs, unlike gasoline prices, are highly inelastic due to their critical role in moving goods across retail supply chains and data center construction. This inelasticity means rising fuel costs will inevitably be passed on to businesses and consumers, spilling over into core consumer price index categories that typically exclude energy. Slok's warning comes as the Fed sets monetary policy following its first rate hike since 2023, with inflation still significantly above the central bank's 2% target. He cautioned that the Fed cannot treat diesel price increases as a temporary phenomenon, as their spillover effects will directly impact core inflation measures.
Read sourceApollo Economist Warns Record Diesel Prices Pose Greater Inflation Challenge for Fed
Torsten Slok, chief economist at Apollo Global Management, warned on September 25 that record-high diesel prices pose a greater inflation threat than the Federal Reserve currently anticipates. Slok argues that diesel-related transportation costs differ from gasoline price impacts because demand for transporting goods—from retail supply chains to data center construction—is highly inelastic, meaning price increases will inevitably be passed on to businesses and consumers. This dynamic is particularly critical as the Fed formulates monetary policy following its first interest rate hike since 2023. Slok contends that the Fed cannot dismiss diesel price increases as temporary, as they will spill over into core inflation categories, which currently remain well above the central bank's 2% target.
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Apollo Economist Warns Record Diesel Prices Pose Greater Inflation Challenge for Fed
Torsten Slok, chief economist at Apollo Global Management, warned that record-high diesel prices pose a greater inflation threat than the Federal Reserve currently anticipates. He argues that diesel-related transport costs, unlike gasoline prices, are highly inelastic because they are essential for moving goods across the retail supply chain and data center construction. These costs are being passed on to businesses and consumers, spilling over into core consumer price index categories. Slok's warning comes as the Fed considers its next monetary policy steps after its first rate hike since 2023, with inflation still well above the 2% target. He cautions that the Fed cannot treat the diesel price surge as temporary, as its effects are already feeding into core inflation measures that typically exclude energy.
Read sourceApollo Warns Diesel Prices Driving Core Inflation, Complicating Fed Policy Path
Apollo Global Management's chief economist Torsten Slok warns that surging diesel crack spreads, which hit a record $100 per barrel in the U.S. Gulf Coast in August compared to a historical norm of $15-$30, are a key leading indicator for core inflation. Unlike gasoline, which primarily affects consumer spending, diesel is essential for freight, rail, agriculture, and construction. Slok argues that because U.S. refinery capacity is constrained and supply is inelastic, industrial and logistics firms pass high fuel costs downstream, embedding them into core goods and services. This structural pressure undermines the Federal Reserve's ability to rely on natural inflation cooling, as interest rate tools cannot increase refinery capacity or fix supply chains. Combined with AI investment demand, fiscal deficits, and Treasury supply, the analysis suggests the Fed may be forced to keep rates higher for longer to combat this persistent inflation source.
Apollo Warns Diesel Costs Driving Core Inflation, Complicating Fed Rate Path
An analysis by Apollo Global Management, attributed to chief economist Torsten Slok, warns that surging diesel prices are becoming a key driver of core inflation, creating a policy dilemma for the Federal Reserve. The article notes that the diesel crack spread in the U.S. Gulf Coast surged past $100 per barrel in August, far above the historical norm of $15-$30, signaling severe supply bottlenecks. Unlike gasoline, which primarily affects consumer spending, diesel is essential for freight, rail, agriculture, and construction, meaning its costs are passed through the supply chain into core goods and services. Apollo argues that the Fed's rate hikes cannot address refinery capacity constraints or supply chain disruptions. Combined with AI investment demand, fiscal deficits, and Treasury supply, this structural pressure could force the Fed to keep rates higher for longer, challenging the expectation of a natural inflation decline.