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Russian invasion of Ukraine adding more pressure to Inland Empire inflation

Gas prices seen at the San Bernardino 7-Eleven gas station off Inland Center Dr. and South I St. on March 7, 2022.
Jonathan Linden
91.9 KVCR
Gas prices seen at the San Bernardino 7-Eleven gas station off Inland Center Dr. and South I St. on March 7, 2022.

KVCR's Jonathan Linden spoke with Cal State San Bernardino Economics Professor Daniel MacDonald for their monthly discussion on economics here in the Inland Empire.

Jonathan Linden: You're listening to 91.9 KVCR news, and I'm Jonathan Linden. We've been talking each month was Cal State San Bernardino Economics Professor Daniel McDonald to discuss economic issues here in the Inland Empire. To get started, Daniel, can you tell listeners what your economic indicator is for this week?

Daniel MacDonald: Sure. My indicator this week is diesel prices.

Jonathan Linden: And what is it about diesel prices that's kind of bringing your attention to it?

Daniel MacDonald: Well, while gasoline and diesel prices tend to move together, over the last two months or so, diesel prices have been increasing at a faster clip than gasoline prices. In fact, in California, average diesel prices are already above $5 a gallon, whereas average gasoline prices are still a little below that. Diesel prices matter because of their connection, obviously, to the goods movement industry; the trucks that logistics companies rely on use diesel. And so, higher diesel prices mean higher transportation costs, and companies are keen to pass those costs on to consumers in the form of higher prices and surcharges on deliveries.

Chart showing the average fuel price in California from November 1, 2021, to February 28, 2022.
Daniel MacDonald
Chart showing the average fuel price in California from November 1, 2021, to February 28, 2022.

Jonathan Linden: So, I'm sure most people have been noticing a big increase in gas prices recently. Has the diesel increase been larger percentage-wise than what unleaded fuel has looked like?

Daniel MacDonald: That's right, the diesel price increase has been maybe about 10%, whereas the gasoline price increase has been 5% to 6%. That's just over the last few months.

Jonathan Linden: And that kind of ties into my next question here, with these rising gas prices, a lot of people are talking about how the war in Ukraine is affecting that. Can you kind of elaborate about why that situation is affecting us here in the Inland Empire and across the U.S.?

Daniel MacDonald: Sure, well, there's a little bit of context here because higher oil prices are really a tale of two stories. You know, over the last year, as we've spoken about before, the economy has been slowly but surely recovering from the pandemic. And this has sent many people back to work. And it has created a surge in demand for goods and services, things that people couldn't do during the lockdown, for example. And all of this has raised oil prices already, so even before the Russia-Ukraine conflict began, oil prices were at levels that we haven't seen in years. But the Russia-Ukraine war and the resulting geopolitical tensions from it have sent oil prices even higher, but they have yet to put a serious dent in supply. So, the reason they've seen prices higher is because people are worried of a potential supply shortage. And they think that because of the geopolitical tensions, it's possible that supply could be disrupted at some point in the future. So, when people expect prices to go up, that's usually what happens. But supply remains constant, at least for now. So, supply of oil, even though these geopolitical tensions, has remained relatively constant, and so we haven't seen anything that would make economists worried about a potential for these conditions to get even worse.

Jonathan Linden: And even before this Russian invasion of Ukraine, inflation has been a big concern of many. How is that looking like right now? I know you've been more optimistic about it. Where do you stand on inflation, not only just here in the IE, but in the U.S.?

Chart showing the Inland Empire inflation rate from January 2020 to January 2022.
Daniel MacDonald
Chart showing the Inland Empire inflation rate from January 2020 to January 2022.

Daniel MacDonald: Sure, both in the Inland Empire and nationally, inflation has been going up. And one of the primary drivers of that is indeed transportation costs, used cars, and trucks, (and) gasoline. And so, these geopolitical situations will just intensify those issues. And in fact, the recent developments, which could bring about a shock to the oil supply, could have some major ramifications on inflation. Up until now, inflation has been about just people buying more goods, getting out more, demanding more goods and services, driving prices up. But this recent development of events suggests that supply could begin to become a major player as well. So, if supply cuts back, as is certainly possible, this could lead to a complication of the issues. As I mentioned earlier, with diesel prices, for example, when transportation costs go up, then companies pass on those higher costs to the consumer in the form of higher prices. Right now, we've seen prices go up in just a few key industries, housing, like I mentioned used cars and trucks, furniture, and some other durable goods. But if transportation costs continue to increase, we could see those inflation pressures start to creep up in other sectors of the economy. For example, nondurable goods, prices of services, for example, if gasoline prices are going up, that's going to affect your commute to work. But it's also going to affect Uber and Lyft drivers who might find it much harder to earn a decent income from their work, and so you could see ramifications on the prices of Uber rides. And as this increase in gasoline and diesel prices unfolds, then this inflation could just kind of have ripple effects through other parts of the economy that have so far been safe or insulated from the inflation pressures that we've seen so far.

Jonathan Linden: Well, Daniel, it's been a pleasure speaking with you, as usual. It's been nice to have you here in studio for the first time, and I look forward to speaking with you next month.

Daniel MacDonald: Great. Thanks so much. It was a pleasure to be here.

Jonathan Linden was a reporter at 91.9 KVCR in San Bernardino, California. He joined KVCR in July 2021 and served with the station till October 2022.
Professor Daniel MacDonald is the Chair of the Economics Department at California State University, San Bernardino. He earned his B.A. in Mathematics and Economics from Seton Hall University in 2007 and his Economics Ph.D. from the University of Massachusetts Amherst in 2013.