The Bureau of Labor Statistics put out the August Producer Price Index this morning. Diesel rose 24.1% in a single month, while Numerator's index put everyday-goods inflation at 2.2% year over year.
The shelf price is calm. Getting to the shelf, and getting goods onto it, is not. That gap is the drive-time tax. Three Federal Reserve districts already have retailers on record about where the lost trips went, and one store format gets paid either way.
Diesel moved 24% in a month. Shelf prices moved 2%.
The August PPI has final demand goods up 1.1% for the month, and BLS pins more than three-fourths of that on energy, which rose 4.2%. Diesel alone rose 24.1%. The freight lines behind every store shelf moved too: truck transportation of freight up 2.0% and transportation and warehousing services up 2.3%. The whole index rose 0.4% on the month and 5.4% on the year.
At the pump, the Energy Information Administration has on-highway diesel at $5.967 a gallon as of Monday, up 36.8 cents in a week and $2.20 from a year ago, a 58% jump by our arithmetic on EIA's dollar figures. Regular gasoline sits at $4.157, up 97 cents on the year. The spread by region is wide. California diesel is $7.76 after a 55-cent week. The Gulf Coast is $5.75.
Those are Monday's numbers, and the week didn't stop there. On Tuesday, Iran-backed Houthi forces hit Aramco sites in Jazan, Abha, Najran and Khamis Mushait, setting the Jazan refinery on fire and wounding 73 people. By Thursday, Brent crude was at $105, its first time there since May, and AAA had the national diesel average at a record $5.98. US diesel futures cleared $200 a barrel, the second time that's happened, the first being the weeks after Russia invaded Ukraine. Satellite imagery on Thursday also showed a smoke plume close to 100 km long along Saudi Arabia's East-West crude pipeline, the line that carries export barrels to the Red Sea and around the Strait of Hormuz. Aramco has not confirmed damage to the pipeline as I write this. If that line is out, the pump price above is a floor.
Now the shelf. Numerator's Consumer Goods Price Index, built from about 7 million item-level transactions a month across a 200,000-household panel, has everyday goods up 2.2% year over year in August, down from 2.6% in July. Prices fell 0.1% in the month, after a 0.4% drop in July. Low-income households saw the slowest year-over-year increase of any group, at 1.2%. Their cumulative increase since 2018 is 34.9% against a 33.2% national average, and 40.5% of consumers now name rising prices as their top concern for the year ahead, a record for the tracker.
What this means: The basket your shopper sees is flat. The cost of reaching it, and of restocking it, is up by double digits. Any model that prices demand off shelf inflation alone is reading the wrong line.
Three Fed districts say where the trips went
The Beige Book came out September 2, before the PPI print, and the district pages already sound like one long fuel story.
Philadelphia reports that more than 90% of firms in its survey saw customer price sensitivity rise or hold from the prior quarter, and that reading has held for a year. Its retail contacts said customers "are more price sensitive and have changed their buying behavior in light of higher fuel prices." Two nonauto retailers pinned falling store visits on the "psychological effects of higher fuel prices," and said promotions hadn't moved sales. One restaurant contact reported the opposite: promotions still worked and "drove increased spending among lower-income customers."
Cleveland has consumer spending down for a fourth straight reporting period in a district where manufacturing demand is growing on data-center and defense orders. One large retailer told the bank its prices on petroleum-based products rose more than 20%, against 2 to 3% on everything else it sells.
Kansas City shows you the household end of it. Rising gas prices are pushing low- and moderate-income families to pull money from rent, utilities, and food, take on debt, and cut trips, including medical appointments. One contact described a client with a 100-mile commute now paying $100 a week for gas and working overtime to cover it. Consumers in the district are "increasingly relying on credit cards to manage nondiscretionary spending between paychecks."
In the national summary, auto sales were "mostly subdued, dampened by downbeat consumer confidence, high fuel prices, and rising financing costs." Consumer spending "grew slightly on balance." Labor demand rose in manufacturing and construction "while retail and hospitality sectors saw falling labor demand."
The New York Fed's August consumer survey shows how slight. Households expect their spending to grow 5.2% over the next year, up 0.3 points. Their expectation for gas prices rose 1.7 points to 4.6%. And the average odds households put on unemployment being higher a year from now rose to 44.4%, the highest reading since April 2020. The dollars are still flowing. They're being re-routed, with a nervous household doing the routing.
What this means: The shopper isn't gone. They're folding trips together and paying for gas with the grocery money. The store that loses is the one that was its own trip.
The format that sells the trip itself
One format gets paid on the fuel dollar and on the folded trip, and it reported this week.
Casey's General Stores posted a fuel margin of 47.8 cents a gallon for the quarter ended July 31, against 41.0 cents a year earlier, on same-store gallons down 0.3%. Fuel gross profit rose 19.6%. Inside the store, same-store sales grew 3.2% on prepared food and non-alcoholic drinks. Net income rose 27.1% to $273.7 million. The chain ended the quarter at 2,959 stores, 9 built and 12 bought, and reaffirmed its plan to open at least 120 stores this fiscal year on about $800 million of capital spending.
Casey's quarter closed before the September diesel move, so that margin came out of an ordinary quarter. Fewer gallons, more profit per gallon, and the inside sale on top.
The building keeps going right through the shock. Wawa opened four stores in the past seven days: Salem and Middletown in Virginia, then Miamisburg, Ohio and Murfreesboro, Tennessee on the same day.
What this means: A fuel-anchored store gets paid twice on a consolidated trip. For everyone else, the pad next to one is worth more this quarter than the destination box across town.
What it does to a site model
Most trade areas get drawn in minutes. A 10-minute drive time is a cost assumption dressed up as a distance, and the cost just moved. At $4.16 a gallon, the shopper who used to make a separate trip to a store across town is the one the Philadelphia retailers say they're losing, and a promotion doesn't buy them back.
So, for Monday:
- Re-cut your trade areas on drive cost, not drive time. Rank sites by how far the customer actually travels, and assume the far edge of every zone thins first. GrowthFactor's trade zones are drawn from where visitors come from rather than a radius, which is the number you need for this.
- Treat the pad next to a fuel-anchored store as a different site class from the destination box, and price it that way.
- Put a freight line in any fit-out or inventory budget you sign this month. The PPI has truck freight up 2.0% and warehousing up 2.3% in a single month, and that shows up in your contractor's bid before it shows up in the CPI.
What this means: The shelf will keep telling you inflation is over. The trip will not. Underwrite the trip.
-Andrew
Founding Team Member, GrowthFactor