"It's like somebody turned the faucet off" - gas prices keep inflation high

Luke Wilson (0:00)

Rising energy costs keep US inflation a lot higher than the Fed would like. It's World Business Express from the BBC World Service. I'm Luke Wilson. China wants to boost the percentage of EVs and autonomous vehicles on its roads. An athlete competes for a share of $10 million at the inaugural World Athletics Ultimate Championships.

Prices in the United States rose 3.4 percent in the year to August, unchanged from the previous month. But it means that year on year, real earnings are down 0.3 percent. Samira Hussain is our North America business correspondent.

Samira Hussain (0:41)

US inflation was still running hot in the month of August, and energy prices were a big driver of that. Diesel has hit record highs in the price of gasoline, while not breaking records, it's still really very expensive. Now, if you cut away volatile things like food and energy, the consumer price index was up 0.3 percent in the month. Now, although this is not the Federal Reserve's preferred gauge of inflation, it is certainly something that the US. Central Bank will be taking into consideration at its meeting next week. And it seems increasingly likely that the Fed will have to raise interest rates. And if you look at financial markets, well, they certainly think that that's the case, with traders in the Federal Funds futures markets putting the odds of a rate hike at 90 percent.

Luke Wilson (1:30)

It comes as rising oil prices pushed US diesel above $6 per gallon for the first time ever. Jamie Hagan is president and owner of Hellbent Express, a family-owned trucking company in South Dakota. And he told me it's having a big impact on his business.

Jamie Hagan (1:45)

Fuel costs here in the United States, we're known for our cheap energy, right? Like the rest of the world has always had to endure big expenses on fuels. So we haven't had this issue, so we're definitely not used to it. It's been challenging to pass this along to customers and shippers. A lot are resisting. They're wanting us to endure the cost of it. Everybody was willing at first, but now that it's reaching this record high, everybody is, for the most part, pushing back. Our numbers are getting shorter and shorter. Our profit margins are decreasing.

Luke Wilson (2:23)

And do you know how much your fuel costs have gone up?

Jamie Hagan (2:26)

Well, from the low, it's doubled, so it's been tough. We had kind of planned, everybody was hanging their hat on Donald Trump there, that he was going to bring prices down, and he did at first. And now with this war, things have kind of gone out of control, which I'm guessing he didn't plan for. You know what I mean? I don't think everyone was thinking that this was going to happen next. And now that we're experiencing record levels, it's catching everybody off guard.

Luke Wilson (2:53)

What does it mean for you as a business trying to plan for the future, trying to invest? How hard is that now?

Jamie Hagan (3:01)

Well, now it's too late. I've already invested. We're buying newer equipment and kind of investing, thinking that this was going to be the way, like the economy was just going to start humming.

Things were going to start going, moving quickly and reinvestment in the United States, like bringing business back and all these things because of this. And now everybody's paused. Literally, it's just like somebody turned the faucet off. And the calls aren't coming in, the freight is slowing down drastically, quickly, because there's just no money left for it. People aren't buying things, and shippers aren't building things. And that's what's catching everybody more than anything, is just the cooling of the entire economy. So that's what's making me more nervous than anything. As long as trucks are still moving, you can make money. It's when they stop moving, that's when things get expensive quickly. That's where I think a lot of guys are getting nervous.

Luke Wilson (3:59)

Jamie Hagen from Hellbent Express Trucking in South Dakota. Randeep Somal is fund manager at M&G Investments, and Brent Crude hitting $108 a barrel overnight before paring back slightly. Where are we now, Randeep?

Jamie Hagan (4:14)

Hi, Luke.

Randeep Somal (4:15)

We're about $103 now, but bearing in mind, we started the week at $97. It is a material increase with the ongoing issues that we're seeing in the Middle East and likely to continue to push these inflation numbers up.

Luke Wilson (4:28)

And we saw some of this uncertainty from that feeding into trading in Asia earlier, didn't we? Are we seeing a similar performance in European markets?

Randeep Somal (4:37)