Diesel shortages and strong ISM data flag persistent inflation threat for gold and stocks

Two separate developments are currently signaling the same risk from distinct perspectives. According to Platts data, diesel—the fuel that powers trucking, farming, and freight—is approaching its peak seasonal demand period with the lowest supply cushions in years, creating a cost pressure that directly feeds into the expenses of transporting and manufacturing goods. In a separate thread, KPMG US Chief Economist Diane Swonk, citing the ISM manufacturing and services price indexes along with the Fed's Beige Book, contends that pipeline inflation pressures are intensifying rather than receding, as tariff and transportation cost hikes increasingly extend from goods into services.

Individually, neither development would likely shift markets significantly from current pricing. However, together they outline a concrete transmission path from a physical commodity shortage to broader and more persistent inflation, precisely when the Fed is evaluating whether current price pressures are temporary or embedded. Should this combination persist through the northern autumn, it suggests a higher-for-longer interest rate trajectory than what markets currently anticipate. That would generally weigh on equities and non-yielding assets such as gold in the short term, although gold's long-term safe-haven appeal would be reinforced if inflation truly becomes unanchored. This is a genuine and present risk, not a foregone conclusion. The analysis below presents both the argument for it and the factors that could undermine it.

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Two distinct alerts—one originating in fuel markets and another from economists close to the Fed—are pointing to the same risk: inflation that is becoming increasingly difficult to remove.

Key points:

• As of 21 August, global diesel inventories were at 542 million barrels, a year-over-year decline of 28.5 million barrels. Russia and the Middle East, which together represent about half of global net diesel supply, are now largely sidelined, per Platts, part of S&P Global Commodity Insights, and S&P Global Energy CERA.

• US refinery utilization reached a record 98%, and the USGC ULSD crack spread set an all-time high of $98.15 per barrel on 1 September. US diesel inventories are below the five-year range as the country enters peak harvest and heating season.

• KPMG US Chief Economist Diane Swonk stated that the latest ISM manufacturing and services price indexes both indicate a rebound in pipeline inflation pressure instead of continued disinflation. Manufacturing reflects tariffs and import costs, while services show wider cost pass-through.

• Swonk noted that the Fed's Beige Book similarly highlighted increasing inflation pressure, alongside a bifurcated, "K-shaped" pattern in consumer spending. This pattern sustains elevated aggregate demand and inflation even as price-sensitive households cut back.

• Swonk said that at a Chatham House Rules meeting of about 50 economists this week, the discussion moved from whether the Fed needs to raise rates to how much tightening would be required to halt inflation that some industry experts now view as entrenched.

• Labor data referenced by Swonk indicates emerging pockets of shortage. The Atlanta Fed wage tracker shows some wage firming for job changers, while August ADP data revealed only a mild slowdown in wages for those remaining in their positions.

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This week, two distinct inflation warnings emerged from vastly different market segments, and combined they paint a more concerning scenario than either individually.

The first warning is tangible and operational. Per Platts, part of S&P Global Commodity Insights, and S&P Global Energy CERA, the Americas are approaching their most diesel-demanding period of the year with the leanest supply buffers in recent history. Global diesel inventories were 542 million barrels on 21 August, a year-over-year drop of 28.5 million barrels. Russia and the Middle East, which together make up roughly half of global net diesel supply, are both effectively taken out of the picture by sanctions, drone attacks on refineries, and Strait of Hormuz disruptions. US refinery utilization has reached a record 98%, the USGC ULSD crack spread hit an unprecedented $98.15 per barrel on 1 September, and US inventories are below the five-year range's lower bound. This occurs just as fall harvest, early winter heating needs, and refinery maintenance season coincide in a narrow timeframe. Diesel is not a minor energy source. It supports trucking, farming, rail, and shipping, so a prolonged shortage filters into the costs of transporting and producing almost all other goods in the economy.

The second alert concerns how such cost pressures propagate through the broader economy. It originates from KPMG US Chief Economist Diane Swonk, who provides briefings to the Federal Reserve. Writing about a meeting of approximately 50 economists from various industries and nations this week, conducted under Chatham House Rules (thus no individual attribution), Swonk characterized the inflation outlook that emerged as striking and strong, aligning with recent ISM survey results in both services and manufacturing. She stated that the key takeaway from ISM price indexes is a revival of pipeline inflation pressure instead of ongoing disinflation. Manufacturing shows the direct impact of tariffs, imported inputs, and supply chain disruptions, while services show the wider pass-through of those costs, compounded by labor shortages and wage pressures. She said that increasing transportation and logistics costs are increasingly moving from goods prices into services, calling the dynamic "aftershocks colliding with one another."

Swonk said the meeting's discussion tone had shifted significantly, from whether the Fed needs to raise rates to how much tightening would be necessary to stop an inflation episode that many industry specialists now regard as entrenched. There is growing concern that high prices are becoming ingrained in company and consumer expectations, even as consumers diverge in their responses to price increases. She noted that the Fed's Beige Book reinforced the rising-pressure narrative, while also highlighting a bifurcated, "K-shaped" pattern in consumer spending. Gains concentrated among less price-sensitive households are sufficient on their own to sustain aggregate spending and elevated inflation, a dynamic she said will not self-correct if the Fed merely holds rates and waits. She pointed to early indications of labor shortages in the Atlanta Fed's wage tracker, with some wage strengthening for job switchers even as August ADP data showed only a mild deceleration in wages for those staying in their roles. She also flagged that benefits costs are expected to rise again next year, adding more fuel to services-side inflation.

Individually, neither the diesel narrative nor Swonk's report of this week's economist discussion constitutes evidence that inflation is about to surge significantly higher. Diesel markets have experienced seasonal tightening in the past without sparking a widespread inflation scare. Moreover, Swonk's account relies on an off-the-record meeting whose attendees and exact data cannot be independently confirmed, regardless of the credibility of her own synthesis of public ISM and Beige Book data. It should also be noted that some of the current diesel tightness stems from genuinely temporary factors, such as Russian export disruption due to an ongoing conflict and Strait of Hormuz flows that could normalize more quickly than current projections expect, which would relieve the cost-pass-through channel described here. A faster-than-expected resolution of Hormuz shipping disruptions, a recovery in Russian exports, or ISM and CPI data in the coming months showing costs being absorbed rather than passed to consumers would significantly alter this outlook.

If the combination persists, however, the market consequences are wide-ranging rather than limited. A real risk of more entrenched inflation, added to a Fed already deliberating between hiking or holding in September, supports a higher-for-longer interest rate trajectory than current market pricing indicates. That would generally pressure equities via higher discount rates and put downward pressure on non-yielding assets such as gold in the near term. However, gold's conventional function as a hedge against inflation and currency debasement would argue for renewed strength if inflation expectations truly become unanchored over a longer timeframe. These two effects on gold work in opposite directions depending on the time horizon, a factor worth monitoring carefully rather than assuming one dominates. This is an evolving risk that should be reevaluated after September CPI data and the Fed's decision on 15-16 September are available, as either could substantially alter which scenario is unfolding.