Apollo Global Management Inc.’s Torsten Slok warned that record diesel prices pose a greater inflation threat than the Federal Reserve may appreciate because those fuel costs flow into the core consumer price index. Demand is highly inelastic because shipping goods is vital for everything from retail supply chains to building out data centers, so price hikes will ultimately be passed on to businesses and consumers.

“When diesel prices go up, that is really entering elsewhere in the CPI basket than in the energy line,” Slok said on Bloomberg Television. He argued the traditional focus on core inflation doesn’t work with a fuel as crucial as diesel. “The rise in diesel prices does not stay in the energy line of the CPI but migrates with a lag into core goods and services,” he wrote.

The nature of diesel-driven price pressure is crucial as the Fed plots monetary policy after its first interest-rate increase since 2023. Chicago Fed President Austan Goolsbee warned the central bank cannot ignore persistent supply shocks. The average cost for US diesel leaped 83% this year through Thursday to $6.50 a gallon, compared with a 59% jump for gasoline.

Slok identified the spending boom in artificial intelligence as the primary reason the economy has remained resilient, estimating it adds roughly one percentage point to GDP growth. He described a scenario where the Fed hopes a resolution to the Iran war eases energy price pressure, calling that outcome “the Hail Mary right now.”