Tennessee Tech professor of economics Ferdinand DiFurio said record high diesel prices creating a significant strain on the economy as rising transportation costs force businesses to increase the price of consumer goods.
DiFurio said the timing of these price hikes is often tied to the elasticity of demand for various products and services.
“This increase in diesel fuel is going to carry over to increases in production costs for firms in all sorts of areas,” DiFurio said. “Probably too many to mention here, but the impact on the economy is going to depend on which firms have flexibility to pass those increases on to their consumers.”
DiFurio said industries such as trucking, agriculture, construction, and manufacturing work together to create a rise in the prices of output goods. While it is difficult to determine which sector feels the spike first, he said transportation and trucking are always significantly affected.
“It’s hard to say which one will feel them first, but it might be a combination of things,” DiFurio said. “And so it’s going to affect all of those items, all those components of the economy.”
DiFurio said diesel fuel is a primary component in the operation of trucks and large transport items used to move household goods and grocery store items. These increased transportation costs eventually translate into higher prices for durable, non-durables, and perishable goods.
“If there’s much of that inputs coming from outside the region, then an increase in those fuel costs can translate to a big impact on the economy, the local economy,” DiFurio said. “Especially if you have a large area to distribute goods and services and inputs through trucking, such as is in rural areas as you mentioned.”
DiFurio said rural regions like the Upper Cumberland could experience a greater economic impact than metropolitan areas because of their reliance on trucking to distribute goods over large areas. The severity of the local impact is often determined by the degree of self-supply within a region and how many inputs must be brought in from the outside.
“I would say the economy would become greatly strained if we have a sustained long-term steady rise in diesel prices over time,” DiFurio said. “So this could affect the economy negatively over a long run.”
DiFurio said consumers should monitor the news cycle and watch the price of regular gasoline at the pump to help determine if the current price levels represent a temporary shock or a long-term trend.