Diesel Price Pass-Through into California Grocery Store Milk Prices

We present new estimates of diesel fuel price pass-through into milk prices. We use Nielsen IQ scanner data from 2006 to 2023 to estimate average diesel pass-through to milk prices in California. We estimate monthly impulse response estimates using panel local projection, and controlling for core CPI inflation. This approach is unique as it delivers pass-through statistics down to the consumer level. We find that the pass-through is significantly different for organic milk (lower), conventional milk, and private label milk (higher). Transmission effects peak at 23% and 10% for private label and national brand conventional milk respectively. The effect of diesel price changes on organic milk are not statistically different from zero, suggesting a low share of transportation costs in the overall prices of high-markup milk varieties. The high pass through measurements show that the diesel price surge of 2022 significantly affected milk prices and thus contributed to the recent food inflation and cost of living crisis.