Grocery Prices Set to Climb as Diesel Tops $6 and Sentiment Sinks

A pause in food inflation is ending

For most of 2026, the grocery aisle was one of the few places where U.S. shoppers caught a break. That is now changing. Diesel and freight costs have climbed since the Iran war began, and food manufacturers are passing those costs on to retailers. The likely result is a new round of grocery price increases over the next few months.

The official numbers still look calm. September's Consumer Price Index showed grocery prices up just 0.1% for the month and 1.8% from a year earlier, while overall inflation rose to 3.7%17. Food inflation as a whole, which includes restaurant meals, slowed to 2.5% from 2.7% in August13. Gasoline drove most of September's increase, jumping more than 9% in a month and accounting for over half of the rise in the overall index20.

Those figures look backward, though, and the costs that come before retail prices tell a different story. The "other motor fuels" category, which includes diesel, was up 60.9% from a year earlier, and the Energy Information Administration put average diesel at $6.18 a gallon, more than double the $2.51 of a year ago17. Wholesale data released a day after the CPI was worse. The producer price index rose 1.3% in September, more than twice the forecast, putting annual wholesale inflation at 6.3%1. That was the fastest monthly gain since March 202210. Transportation and warehousing prices at the producer level rose 3.4% in a single month1.

When wholesale prices run this far ahead of retail prices, the gap does not usually last. Our reading is that September's mild grocery number is the low point, not a new normal.

Food companies are already raising prices

The clearest evidence comes from manufacturers. Campbell's has told retailers it will raise prices 4% to 5% on 60% of its products, and its finance chief has said cost cuts cannot offset what he called extreme inflation11. Conagra is raising prices in frozen foods, including Birds Eye vegetables and Marie Callender's meals11. Spice maker McCormick now expects about 7% cost inflation. Its CFO blamed packaging and, above all, freight costs driven by fuel and tight trucking capacity in the U.S.15.

PepsiCo's change of direction stands out most. Earlier this year it cut prices on some foods by as much as 15%. Now its CEO describes a new wave of inflation hitting every country because of energy and farm prices11. Spot rates for long-haul trucking are up about 50% from a year ago. Piper Sandler reports double-digit annual increases in aluminum, corn, soybean oil and urea fertilizer11.

Ricky Volpe, a food economist at California Polytechnic State University, has been saying this since September. At a briefing hosted by the trade group FMI, he said companies had worked through 2026 to hold prices down but could not keep it up. He expected grocery inflation to rise in the fourth quarter and estimated it could reach about 2.7% for the year12. He has since said food inflation should speed up over the next two to three months, but he does not expect the double-digit increases of 202211. FMI's Andy Harig adds a longer-term risk: farmers rely heavily on diesel and will soon decide what to plant next season12. FMI is also watching a developing "Super El Niño" weather pattern that could disrupt crops and shipping17.

Official data and receipt-based trackers disagree

The reporting splits on how much prices have already risen. Government data puts grocery inflation at 1.8%17. Consumer Edge's food price index, built from sales receipts at Walmart, Target and Meijer, has been running about 4% above a year earlier for four weeks, after bottoming at 3.3% in August11. Numerator found that everyday household prices rose 0.7% in September after two months of declines11.

Even within the CPI, accounts differ slightly. FMI said food-at-home prices dipped in September, helped by beef and dairy17. Other coverage described food prices as flat for the month20. Under the averages, categories move in opposite directions. Eggs are down 20.6% from a year ago, while fresh fruit is up 4.9% and frozen vegetables, a category Conagra is now repricing, are up 2.6%17. Ground beef is up roughly 17% to 20% since January 2025, depending on the measure1618.

The more reasonable reading is that receipt-based trackers are picking up the change earlier than the CPI. They also measure prices at large discount chains, where shoppers are concentrating their spending.

Retailers are cutting prices, but selectively

Grocers are trying to absorb part of the increase. Walmart and Costco are putting tariff refunds into lower prices. Kroger says it is moving its prices closer to discount chains11. Aldi says nearly a third of its everyday items cost less than a year ago, including $1.99 packs of chicken breast, its lowest price since 202211. It is also running about $86 million in fresh-food discounts through November 314.

Albertsons' message was more telling. CEO Susan Morris said its price cuts will be "surgical" rather than across the board, because fuel costs remain high and inflation is hurting both customers and the company's own profits11. Albertsons also said high gas prices are hurting its shoppers while diesel costs squeeze its operations15. Targeted cuts can give the impression that grocery prices are falling while the overall bill keeps rising.

Consumer sentiment is at historic lows

Shoppers have noticed. The University of Michigan's preliminary October sentiment index fell to 46.3 from 48.121. Its measure of current economic conditions dropped to 44.7, the lowest on record2630. Consumers expect 4.7% inflation over the next year and 3.5% over the longer term, the highest readings for both since May28. Before the Iran conflict in February, one-year expectations were 3.4%28.

The pressure falls unevenly. Survey director Joanne Hsu said confidence dropped most among lower-income households and people with smaller stock holdings26. In a special question, only 31% of respondents said they would keep spending as usual on items with big price increases. Fifty-four percent said they would cut back, and 16% said they would stop buying them altogether30. Business leaders are also more pessimistic: the Conference Board's CEO confidence measure fell six points to 4627.

Retail sales look stronger than they are

September retail sales rose 0.8%, well above the 0.3% forecast5. Most of that gain went to fuel. Gas station sales jumped 6.4%, and outside gas stations, sales rose only 0.2%5. One breakdown found gas stations made up about 71% of the month's dollar increase8. The "control group," which feeds into GDP estimates, rose just 0.1% against a 0.3% forecast1.

Retail sales figures are not adjusted for inflation, so with consumer prices up 0.6% in the month, spending in real terms was roughly flat10. CNBC's analysis said the slowdown outside autos and gas suggests fuel costs are forcing households to cut back elsewhere3. Oxford Economics' Michael Pearce said the headline gain came almost entirely from gasoline. He expects consumer spending to lose momentum heading into the holidays5.

The National Retail Federation sees it differently. Its own measure, which excludes autos and gas, showed a 12th straight monthly gain, up 4.05% from a year earlier2. That fits what other coverage calls a K-shaped economy, in which higher-income households keep overall spending up while lower-income households cut back2523. Spending has not collapsed, but it is increasingly split by income. Circana's holiday survey points the same way: planned spending is down to $779 from $796, and 74% of shoppers plan to save money through promotions or store brands23.

Subscriptions are adding to the pressure

Groceries are only one part of the squeeze. Recurring digital bills keep rising. Disney+ and Hulu raised their ad-free plans 13% to $21.49 a month, their fourth increase in four years33. Peacock, Apple TV, Netflix, YouTube Premium and Prime Video all raised prices earlier in 202637. The Hollywood Reporter estimates streaming prices have risen about three times faster than overall inflation since 202239.

Streaming subscriptions are easier to cancel than food, which is part of why they matter here. A household facing higher grocery and gas bills will likely drop an extra subscription before it gives up chicken or milk. When 54% of consumers say they are cutting back on items with big price increases30, monthly subscriptions are an obvious place to start.

What to watch

The timing makes the issue political. Affordability is a top concern for voters heading into the November midterms20. The Fed raised rates in September and meets again October 27-281. Investors put the odds of another increase at about 45%20. Hiring has also slowed, with only 29,000 jobs added in September20.

The low September grocery reading should not be read as relief. Diesel is above $6, wholesale inflation is at a four-year high, and food makers have already announced price increases. Grocery bills are likely to rise before the end of the year, at a time when consumer confidence is already low and many households have little room in their budgets.