U.S. diesel prices hit a record high, inflation pressures may lead the Federal Reserve to raise interest rates again

U.S. diesel prices have surpassed $5.90 per gallon for the first time, setting a historical record. The statewide average diesel price in California is already close to $7.83, with certain areas like San Francisco exceeding $8 per gallon.

Rising oil prices will first drive up overall inflation through the prices of fuels like gasoline and diesel, and will subsequently affect transportation and production costs. Diesel is needed for trucking, agricultural machinery, and engineering equipment in the U.S. When companies pass on the increased costs, food, daily necessities, and other goods will also face upward price pressure.

So even though the core PCE, which the Federal Reserve is most concerned about, excludes food and energy, the rise in oil has an impact on overall inflation. For instance, increases in transportation and production costs will lead to higher goods prices, which also contributes to the increase in core inflation. Moreover, these increases are almost always passed on to consumers.

This is also why I am somewhat worried about the future price movements of Bitcoin. Although I believe there won't be a rate hike in September, the dot plot for September is likely to be influenced by August's CPI figures. If inflation is on the rise, the Federal Reserve may intimidate the market through the dot plot. Furthermore, if the issues in the Strait of Hormuz are not resolved, September's inflation is certainly going to be higher, possibly leading to the Federal Reserve's gift of a rate hike for the midterm elections.

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