Can someone explain these prices?

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0:38Pepsi Prebiotic Cola, unbelievably Pepsi. Oh my gosh, youth sport is insane. Volleyball monthly is$400. Who is doing that? We pay a lot more for diesel than any other country. I tried ordering a medium Domino's pizza the other day. It was like$27. And I was like, wow, this is insane.

1:10Jonquilyn Hill:When I was growing up, my dad and I'd play this game every time we went grocery shopping. We'd guess what the total cost would be, and whoever got closest won. Hey, we need turkey, Dad. I actually still do this, even though I'm shopping just for me now. That means I'm always paying attention to how prices change. What used to feed a family of threes, now just enough to cover my own grocery bill. And those prices just keep going up. So, what gives? Why are so many things so much more expensive than they used to be? I'm John Gwynn Hill, and we're going to find out this week on Explain It To Me From Vox.

1:53Jonquilyn Hill:We'll visit your favorite coffee shop and the grocery store later to figure out what's going on with those prices. But first, we got to stop for some gas. And we're picking up a passenger on the way. My name is Sam Maury and I am the executive director of the Institute for Climate and Sustainable Growth at the University of Chicago. The average cost for a gallon of gas in the U.S. is over$4, the highest it's been since the summer of 2022. So who's to blame for that price?

2:26You know, I think if you really look at the data, the price of gasoline that we pay at the pump is set in the global oil market. So crude oil is like the feedstock that makes gasoline. So more than half of the price that you're paying at the pump is just directly the result of the price of crude oil in the global market. Then you have things like state and federal taxes, the cost of distributing and marketing the gasoline. And of course, then there is some profit making by the oil companies.

2:51Jonquilyn Hill:I remember when the Iraq war started back in 2003. My fellow citizens, at this hour, American and coalition forces are in the early stages of military operations to disarm Iraq, to free its people, and to defend the world from grave danger. A rapid series of 40 explosions lit up Baghdad in the early morning hour. And the moment we're in now, it feels really familiar. Our objective is to defend the American people by eliminating imminent threats from the Iranian regime. You know, now we have this new conflict in the Middle East and gas prices, they went up instantly. And when oil prices finally settle back down, I don't know, the price at my local gas station, it takes way longer to go down than it did to go up.

3:47Jonquilyn Hill:Why does the market react so much faster to bad news than it does to good news? First of all, you're not wrong. This is a measured phenomenon. This is something there's been a good amount of research on. We call this rockets and parachutes. Some people also call it rockets and feathers. The price tends to rocket up very quickly at the pump when crude oil prices go up. But then crude oil prices retreat when the conflict is over or the hurricane damage has been repaired or whatever was the factor driving up crude prices. But gasoline prices tend to take a little bit longer to go down in many cases.

4:22So it's observable. It's a real phenomenon. There's nothing nefarious going on. It's not the result of like a collusion or a conspiracy or anything like that. Gas stations tend to set their price that they put up on the sign based on their cost of acquisition of their next load that's going to come in. And so when they see the price of crude oil go up, they know that their next load is going to be really expensive. Their next delivery is going to be really expensive. And so, you know, they quickly start to put the price up because they know that their cost of replenishing the fuel at their station is going to go up.

4:55On the way back down, there's a few different things that are going on. First of all, the gasoline that those stations have purchased at the higher price is they still have a lot of it sitting in storage on site. They still sell it at the price that they bought that gasoline for. So the other thing that is interesting is that when after prices have kind of hit the high point and they've slowly started to recede, consumers are much less picky. They're just happy that prices are going down. So they don't really do a lot of like really strong comparison shopping like they might do in a normal market situation.

5:25And so there's less pressure on the gas stations to reduce their prices because consumers aren't really comparison shopping quite as hard when the prices are starting to come back down.

5:35Jonquilyn Hill:That's so interesting. You know, for someone who's living like, I don't know, say you live in the Midwest, why does a drone strike in the Strait of Hormuz, 6 ,000 miles away, immediately make their commute so much more expensive? Especially like in the U.S., we produce so much oil. So it depends on what the drone strike hits, right? So let's put things in context a little bit. But I guess the first thing to understand is that the oil market is a truly global market. And one implication of that is that a supply interruption anywhere affects prices everywhere. And the moment that we're living through right now is pretty unique, the supply disruption that we're facing right now.

6:16You know, through the Strait of Hormuz every day, you're looking at something like a fifth of the world's oil supply. Normally, if you disrupt it even, like, think back to, you know, the Libyan civil war during the Obama administration in 2011. The United States and the world faced a choice. Qaddafi declared he would show no mercy to his own people. A brutal end for a brutal dictator. And I don't know what's going on in the Middle East with Libya, they're blaming on Libya, but it seems like every time somebody sneezes over there, gas goes up two bucks a gallon. That's ridiculous. That was a disruption of a million or two million barrels a day or something like that.

6:49You know, it wasn't anywhere near what we're talking now, which is like a, you know, maybe a 10 to 15 million barrel a day oil disruption. It's just enormous in magnitude. The only thing I'm surprised about is that prices haven't gone much, much higher, much faster.

7:03Jonquilyn Hill:Wow. So like, does that mean the U.S. just can't like opt out of the global price roller coaster? Like we can't just be like, hey, y 'all, we got enough gas. We're doing our own thing. We're good over here. Yeah. Don't call us. We'll call you. Yeah. Yeah. No, it doesn't work that way. The U.S. oil market is connected to the global oil market via all the trade that we do. Even though we produce a ton of oil, you know, we were the largest oil producer in the world. The United States still actually imports a lot of oil because the refineries that we have in this country are configured to refine and turn into gasoline and diesel like a certain quality of crude.

7:35And it's not easy to change the configuration of those refineries. And so the oil that the United States produces now overwhelmingly is what's called light, sweet crude oil. That is not the same as what our refinery complex needs in the aggregate. So we still need a lot of heavier, sour crudes. And so we import those and then we export the light oil.

7:54Jonquilyn Hill:What is the price per barrel where this stops being annoying and like, oh, hey, I'm going to have a little more debt on my credit card because of gas. And it's more like a full-blown economic crisis. Like, when is enough enough for us? You know, that's the magic number. I think people are really trying to understand that there's so many factors that are going on right now. We're still not approaching the historical high of oil prices or anything like that. You know, back in 2007, 2008, oil prices reached$147 a barrel. We obviously had a crippling economic recession after that. We're not at that level yet, but it's hard to be so sure that we're not headed in a pretty dangerous direction at the moment.

8:32And remember, it's not only crude oil that was going through Hormuz. It was also a lot of refined product, particularly diesel and jet fuel. And so you're seeing now around the world a kind of a parallel crisis in the jet fuel markets and the diesel fuel markets that I think is also kind of underappreciated. Jet fuel, the aviation industry's highest single cost accounting for nearly about 40 percent of the operating expenses, has nearly doubled in recent weeks. Flights are already being canceled because airlines don't have enough fuel. It's not just the price at the pump, the gasoline price that we face as consumers, as households, as drivers.

9:07It's also how does that diesel price ripple throughout the entire economy? Farmers here in Iowa and across the country are facing mounting financial strain as the price of diesel up nearly$2 since the start of the war. Truck drivers out there, they're also growing frustrated with these gas prices. Some are paying up to$1 ,000 just to fill up their tanks. Wow. The cost of everything that you buy when you go to Target or when you go to the grocery store, the produce, you know, all your cleaning supplies, everything got to that store on a truck powered by diesel fuel. So diesel is now more than$5 a gallon.

9:39And that's a pretty big shock for the diesel market. So I don't think we're at the point yet where I'm really concerned that I'm thinking, okay, this is like flashing red light for recession. But if this crisis is not resolved, and don't take my word for it, Goldman Sachs is out with their forecast. Saudi Aramco has said what they're worried about. Major financial institutions around the world are putting out what their expectations are. And what they're saying is if this is still going on into mid-April, you're going to be looking at oil prices of, you know,$180 a barrel or more.

10:13Jonquilyn Hill:Oh, my gosh. Wow. If this crisis is still going on well into April, you're going to see prices, I think, go so high that we are going to be talking about recession.

10:27Jonquilyn Hill:So we got to give it some time to see how these rising oil prices play out across the economy. Up next, sticker shock at the cafe.

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12:34Jonquilyn Hill:You don't need coffee. I need coffee. I need coffee. You don't need coffee. I need coffee. It's Explained It to Me. I'm JQ. And we asked you if you've noticed the price of things going up. I really like to buy iced coffee and iced matcha throughout the week. And I swear I used to be able to get it for like$5 for an iced latte. And I live in Nashville, so coffee's already expensive. But I went and got an iced coffee with oat milk, and that was it. And it was almost$10. And I just think that's absurd. And I know that coffee, you know, being imported and same with matcha has a lot to do with that.

13:20But that felt crazy to me and kind of unsustainable for me to buy that every day.

13:25Jonquilyn Hill:So why does that latte cost so much more now? That's a question for Eilena Peng. I'm an agriculture reporter at Bloomberg. I cover soft commodities, so that includes coffee, cocoa, and a bunch of things that go in your tiramisu. Ooh, okay. That is a lovely, delicious beet. Very fun. Okay, have coffee prices really gone up that much? They really have. They've been going up for a few years now. So what you're seeing at the grocery store shelf has sort of been in the making since early 2024 or so, which is when we first started seeing coffee prices rise. That was on dry weather in Vietnam, which is one of the world's biggest producers of coffee, and then dry weather in Brazil, which is the world's top grower and is also the U.S.'s top supplier of beans.

14:15And so that shortage started to push up prices and eventually that trickles down to consumers.

14:22Jonquilyn Hill:Can you talk a little bit more about what's behind this price jump? Is there a specific boogeyman in the coffee market right now or are there a lot of different factors at play? The boogeyman is ultimately the climate. I think that's the case with a lot of agricultural goods. And coffee is one of those crops that is sensitive to weather, both in terms of like rainfall and temperature. So in 2024, what we saw is Vietnam grows this variety of coffee called Robusta. It's a typically cheaper variety. It's a little bit more climate resilient. We don't see that much of it in the U.S. because it mostly goes into instant coffee.

15:04It has a higher caffeine content and is also commonly used in espresso blends. But if you get a latte at Starbucks or, say, your local coffee shop, chances are that's a different variety. that's called the Arabica variety, and that's primarily Brazil is the top grower of that. But we saw a drought in Vietnam that was impacting Robusta production pretty significantly. The country has seen very little rain in the last few months, with extreme heat gripping much of Southeast Asia.

15:34The droughts dried up this whole area and the surrounding areas, and the water shortage is so severe that compared to last year, the harvest of coffee cherries is very low. And so when Robusta prices were going up, that also pushes Arabica prices up as well. There was a lot of discussion in the market at the time where if your Robusta prices get so expensive, then instead you replace it with cheaper Arabica. So the demand for both beans pretty much goes in tandem. And as that demand was going up for Arabica as well, Then Brazil was just hit with a series of just like untimely weather events. Two years of drought in Brazil have contributed to a shortage in supply, driving prices to a 47-year-old high.

16:26The coffee harvest this year is terrible. And this latest frost we had is going to hit also the next harvest. And so that sent prices really soaring towards the tail end of 2024. And then the market came down a little bit, it recovered, and then tariffs came into play. President Trump bringing total tariffs on Brazil, the world's largest coffee producer, to a whopping 50 percent. And that's huge because Brazil grows more than a third of all the coffee consumed in the U.S. Never been better off not being a coffee drinker right now. Yeah, good for you. The price of coffee by the pound has jumped more than$2.50 when we compare year to year, and it's partly because of President Trump's tariffs.

17:07Brazil has been a horrible trading partner. And so a lot of roasters, where they could, actually swapped out Brazilian beans for other origins that were a little bit more affordable. Commodity prices have come down significantly from the record highs that we saw in 2025 after tariffs were put in place. Coffee was exempt from tariffs in the fall. And so that helped roasters quite a bit with being able to plan, even though a lot of them are still dealing with leftover costs, basically, because they brought in inventories. You contract inventories months ahead of when they get to the U.S., and then they get to the U.S.

17:46and you're using them for months. So there's a significant lag between that and what you see at the consumer level, which is why shoppers are still paying for record high prices.

17:59Jonquilyn Hill:OK, that's so interesting. It sounds like we're super dependent on these two countries for our coffee, which is interesting to me because I feel like I hear people talk about other countries' beans all the time. Like I live in D.C., like Ethiopian coffee is very big here. Is the global coffee supply really that fragile that, like, you know, if climate impacts Vietnam or Brazil, it breaks down like this entire global market? Pretty much. When it comes to commodity coffee, Brazil and Vietnam just produce at a scale that is beyond that of all the other countries. But yeah, there are a bunch of really good coffee producers around the world, Ethiopia, Kenya, Guatemala, Honduras.

18:43And a lot of these countries now with higher prices are trying to incentivize more production. So it is possible that in future years we will see a little bit of that concentration that's currently in the coffee market shift, which would ultimately be good in the long run.

18:58Jonquilyn Hill:So is a$7 to$10 cup of coffee just the new normal now? Like, even if, you know, we see an end to tariffs, even if climate gets back on track, is that just what we're going to be paying for coffee now? I think possibly. I think some of the people I've talked to have indicated that they might try to pull prices back once they can. Like, obviously, everyone wants to be able to keep consumers buying and to maintain that affordable price point. It's not really in anyone's interest to price people out of their daily cup of coffee. But I think the broad understanding is that the coffee prices won't go back to where they were before all of this started.

19:36Jonquilyn Hill:Beyond just the price of beans, you've reported on friction in the supply chain, like shipping risks in the Strait of Hormuz. How much of that$7 latte people are getting is just based on the cost of the coffee for the consumer? The input cost of the beans themselves is still the main driver for higher costs. But if you talk to roasters, it's also the case that just the cost of operating has gone up a lot. Like, you know, people will say the rent costs are up, labor costs are up, the costs of packaging are also up. And so at a time last year when prices were really high, sometimes you'd talk to coffee shops who would say they had talked to suppliers so they could get slightly cheaper lids for their coffee cups.

20:22And that's where people start looking at places where they can cut back on inputs without affecting the taste of the coffee ultimately, since that is the most important thing that they're paying for.

20:32Jonquilyn Hill:Americans love coffee. Like, we really cannot get enough of it. This is, excuse me, a damn fine cup of coffee. I love how it makes me feel. It's like my heart is trying to hug my brain. What do you think it would take for consumers to say, you know, this is too expensive. I am not doing this. We're seeing it a little bit. We're seeing it a little bit. What I've heard is that the first cup of coffee is the one that people are not likely to get rid of. where the market has been concerned about shifts in consumption is like the afternoon cup of coffee where it's like instead of a five dollar seven dollar cold brew in the afternoon maybe you'll get iced tea instead or some companies have also said their energy drink sales have gone up you just see a lot more consumption at home yeah i also think there's been a trend in some ways away from what the coffee industry called like the third wave of coffee which was like super premium like almost treating coffee like wine where people were going out to seek specific flavors and so on now from what I hear a lot of the coffee industry has been veering towards things that are fun and convenient so it's like iced coffee canned coffees and all of those also do play towards a more budget-minded consumer at this point in time.