Have you noticed the price of gas lately?
No no, not unleaded. I’m talking about Diesel fuel. Let’s go to the chart from the gubment.
I’m talking about that 75 cent spike in just the last two months. Here in Cincy, Diesel fuel is now $4.19 a gallon this weekend. In the last 15 months, we’ve gone from $2.40 a gallon to over $4.
Now keep in mind everything you buy at a store comes by truck and is processed by factories that rely on materials that are largely trucked in.
The price of getting those items to your store has been jacked up by 25% in just the last two months alone. What do you think is going to happen to the already rising prices for these goods?
They’ll go up. They will go up big time and already have started to rise. In the short term we’re going to see some egregious inflation this summer.
Then demand will drop. People will stop buying these items altogether. In the short term, inflation. In the long term, deflation.
Those on the edge, the owner-operator truckers, the smaller grocery store chains, the local bodegas and Asian food stores and Quickie Marts selling gas, they’ll go under first.
The edge will get readjusted. Then new people will be on the edge, and then the people laid off from these higher fuels costs will continue to depress demand.
The edge will keep getting pushed forward more. And every time, the people at the edge will go over.
Massive inflation leads to sharply lowered demand. In the cases where people can’t afford the higher fuel costs, they’ll go out of business.
Yes, this means fuel prices will start dropping as demand lowers. But there’s only so much that demand can lower. Your store is still X miles from the delivery warehouse no matter what the price is, and with truckers going out of business they have even fewer options to choose a trucking company to make those deliveries.
So fuel prices will drop…and those drops will not be passed on to the customer. The trucking companies that are left can’t afford to do so, because they now have fewer customers to deliver to and have their own overhead to meet.
Massive, sharp shocks to the system like a 75 cent increase in Diesel fuel nationwide in 60 days are things that the system would have trouble handling even in a good economy. In our current economy, where things are largely unregulated, where businesses are told to police themselves and do so by taking as much slack out of the system as possible for maximum profit, those shocks can be enough to break the system.
If you pull sharply on a rubber band that has slack in it, it stretches.
If you pull sharply on a rubber band that’s already stretched to the limit, it snaps.
It’s bad now. It’s going to get worse on a number of fronts very quickly. Everything you buy is influenced by the cost of diesel fuel. Diesel fuel has jumped almost a $1.20 nationwide since last year. Almost all of that increase has come within the last 3 months…in other words, 1Q of 2008.
We’re a consumer economy. We’re going to consume a lot less this summer. And it’s going to get brutal out there.
Unleaded is bad right now. But diesel? That’s a whole lot worse and a whole lot more important to you overall bills every month, even if you bike or walk or take public transportation.
Everything in America runs on just in time delivery. Just in time delivery runs on Diesel. Right now, we’re all about to get a nasty case of Diesel disease.
Keep an eye on the price of Diesel fuel. Watch prices at your local stores as a result.
Be prepared.
