Can someone explain these prices?

Where does President Trump's speech leave us with regard to where the war is headed? And it really was to me the story of the commander-in-chief who weeks into this war is deeply uncertain about how it ends. I'm John Feiner, co-host of the Long Game Podcast. This week, Jake Sullivan and I break down the President's speech and discuss what it's like to negotiate with the Iranians. We will also debate whether Iran should accept a deal. The episode is out now. Search and follow the Long Game wherever you get your podcasts. Oh my gosh, youth sport is insane. volleyball monthly is $400. Who is doing that? We pay a lot more for these folks than any other country. I got to try ordering a medium domino speech of the other day. It was like $27. And I was like, wow, this is insane. When I was growing up, my dad and I play this game every time we went grocery shopping. We'd guess what the total cost would be and whoever got closest, one. Hey, we need your feedback. 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 three's now just enough to cover my own grocery bell. 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 Quinhill and we're going to find out this week on Explain It To Me From Vox. We'll visit your favorite coffee shop in 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 Oory 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 US is over $4. The highest it's been since the summer of 2022. So who's to blame for that price? 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 the feed stock 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. 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. 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 rock it up very quickly at the pump as 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. So it's observable. It's a real phenomenon. There's nothing nefarious going on. It's not the result of like collusion or 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 they quickly start to put the price up because they know that their cost of replenishing the fuel that their station is going to go up. On 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 onsite. 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 the 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. And 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. 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 straight of hormones? 6,000 miles away immediately make their commute so much more expensive, especially like in the US, 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. You know, through the straight of hormones 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 face the choice. Kudafi declared he would show no mercy to his own people. A brutal end for a brutal dictator. And I know it's going on in the Middle East with Libya where I was saying, "Blavenon Libya" seems like every time so many sneezes over, and gas goes up to box of gallon, that's ridiculous. That was a disruption of a million or two million barrels a day or something like that. You 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. Well, 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. Wow. So like, does that mean the US just can't like opt out of the global price roller coaster? Like we can't just be like, "Hey, all we got enough gas. We're doing our own thing. We're good over here." Yeah, yeah. Don't call us. We'll call you. Yeah, yeah. No, it doesn't work that way. The US 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. And 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. 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. And 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. And remember, it's not the only crude oil that was going through Hormuz 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, in 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% of the operating expenses, has nearly doubled in recent weeks. Flights are already being cancelled because airlines don't have enough fuel. It's not just the price at the palm, the gasoline price that we face as consumers, as households, as drivers. It'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 a 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. Wow. 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 a flashing red light per recession. But if this crisis is not resolved and don't take my word for it, you know, Goldman Sachs is out with their forecast. Saudi Aramco has said what they're worried about. You made your 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 it. oil prices of $180 a barrel or more. - Oh my gosh, wow. (upbeat music) - If this crisis is still going on well into April, you're gonna see prices I think go so high that we are gonna be talking about recession. (upbeat music) - So we gotta give it some time to see how these rising oil prices play out across the economy. Up next, sticker shock at the cafe. (upbeat music) - Support for this show comes from Groans. Spring schedules can get busy fast, between travel, longer days, and the weather getting nice again, you may not have time for complicated wellness routines. Groans says they're here to simplify things. By covering vitamins and minerals, greens and prebiotics in one easy grab and go step. Groans say they are a convenient comprehensive formula packed into a snack pack of gummies a day. They say they're not a multivitamin, a greens gummy or prebiotic. They're all of those things and then some at a fraction of the price. 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It's also kind of beautiful and it's worth explaining, yeah? - I would argue, in addition to that, there's a lot of trash information out there. Like people even wanna rely on AI, but AI isn't being fact-checked. It's just spilling from a bunch of places. And sometimes you've seen it giving you the wrong information. We fact-check our show. You hear at the end of the show every day who fact-checks the show. We put a lot of effort into making sure that we are bringing you the most accurate information possible and you can support that effort. - That's right. If you believe in the journalism that we do, as much as we do, you can become a Vox member, Vox.com/members. 30% off, can you believe it? - Let's go. - Your first year sign up now. - Thank you. - You don't need coffee. - I need coffee. - I need coffee. - I need coffee. - I want coffee. - Oh. - It's explaining to me, I'm J.Q. 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 being imported and the same with matcha, I have a lot to do with that. But that felt crazy to me and kind of unsustainable for me to buy that every day. - So why does that latte cost so much more now? That's a question for Alina 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 beat. - It's very fun. - Okay, I have a coffee price has really gone up that much. They've 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 US's top supplier of beans. And so that shortage started to push up prices and eventually that trickles down to consumers. - Can you talk a little bit more about what's behind this price jump? Is there a specific bogeyman in the coffee market right now or are there a lot of different factors at play? - The bogeyman 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 US because it mostly goes into instant coffee. It has a higher caffeine content and is also commonly used in espresso blends. But like if you get a latte at like 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's 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. The 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. The coffee harvest this year is terrible and this latest frost we had is going to hit also the next harvest. And so that scent price is really soaring towards the tail end of 2024. And then the market came down a little bit, recovered and then tariffs came into play. President Trump bringing total tariffs on Brazil, the world's largest coffee producer, to a whopping 50%. And that's huge because Brazil grows more than a third of all the coffee consumed in the US. Never been better off not being a coffee drinker right now. Yeah, good free. 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. Brazil 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. But the price 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 like leftover costs basically because they brought in inventories. You contract inventories months ahead of when they get to the US and then they get to the US and 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. Okay, 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 DC. 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 like 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. And 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. So is a seven to ten dollar cup of coffee just the new normal now? Like even if you know we see an end of 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. Beyond just the price of beans you've reported on friction in the supply chain, like shipping risks in the straight of her moves. 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. People will say the rent costs are a labor costs are the costs of packaging are also up. And so at a time last year when prices were really high, sometimes you talked to coffee shops who would say they had talked to suppliers so they could get slightly cheaper lids for their coffee cups. And 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. 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. 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 $5 or $7 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 weren't 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. Coming up, got milk? Well, it's going to cost you. Hi, I'm Brunei Brown. And I'm Adam Grant. And we're here to invite you to the Curiosity Shop. A podcast that's a place for listening, wondering, thinking, feeling, and questioning. It's going to be fun. We rarely agree. But we almost never disagree. And we're always learning. That's true. You can subscribe to the Curiosity Shop on YouTube or follow in your favorite podcast app to automatically receive new episodes every Thursday. All the way back in the year 2000, Amazon CEO Jeff Bezos had this big idea that maybe the future wasn't typing, it was talking to your computer with your voice. Jeff Bezos didn't invent this idea, but he did push his team to invent what would become Alexa and the Amazon Echo. Two things that brought voice computing into millions of homes around the world. This week on version history, our chat show about the best and worst and most interesting products in tech history, we're telling the whole story of the Echo and how Amazon managed to get it right and still kind of missed the future. That's version history on YouTube and wherever you get podcasts. It's explaining to me. So we know why gas is so expensive and why our coffee costs so much. But what about the milk we put in that coffee? I am Chuck Nicholson and I teach supply chain management courses and work on agriculture and food supply chain issues at Penn State University. So today we're talking about milk and the national average for a gallon of milk is sitting around $4.03 right now as we're recording to a regular person at the grocery store. Does that feel normal or is this a really weird moment for dairy for us? Paying $4 for a gallon of milk is not an unusual thing to see when you walk into the grocery store. It depends a little bit on where you're going and what type of milk you're buying. It's actually kind of an arrange that we might expect. How does milk compare to the rest of dairy price-wise? Well, we have a really complicated system of setting prices that get paid to farms. And that actually gets paid on the basis of what the milk is used for. So the highest value use and the highest price that you would pay for milk is for milk that's going to go into that carton at the grocery store. I like milk for all the food, healthy things that are in it. That has linkages to all the other dairy products in their prices because milk can be used for a bunch of different things and it is even from the same farm. From one day that actually can be used to put in a carton the other day, it's made into cheese. But typically that highest value is going to get paid to the farmer is for milk that we buy at the grocery store. So there's a huge gap in the price for a gallon of milk depending on where you live. Someone in Cincinnati might be $250 while someone in Chicago will pay over $5. How does the same product cost such different prices in places that aren't even that far away from each other? Part of that is different grocery stores have different pricing strategies for milk. We sometimes have stores that would be at that lower end of the price range. Sometimes we call that a loss leader. It's a signal that says, hey, all the prices in our store are really good, including the one for milk. And others have prices that are based on what the market will bear in their particular location. I want to break down that cost of a gallon of milk. Let's say the average is $4.03. Who is getting what from that price? Yeah, so there's a rough rule of thumb that about half of that value is going to be paid to the farmer. Okay. And if you think about the other things that have to happen to get the milk to the grocery store, somebody's got to transport the milk from the farm to a place where it's going to be processed. Somebody has to process it. Somebody has to transport it from the place where it was processed. Maybe to what we call a distribution center or maybe directly to a grocery store. All those folks have some margin that they're going to run out of this. So, rough rule of thumb might be 50% of the farmer, about 20% of that person who's actually taking the milk and putting it into a carton. And about 30% of that might go to the food retailer. That's kind of a rough approximation of how that pie gets divided up among the different key players in the supply chain. There's a lot of money that goes into livestock and a good chunk of that money goes into feeding that livestock, say, you know, there's a big storm and it hits the corn belt. How long does it take for that to show up on my grocery receipt usually? Generally, it's not instantaneous. So, even if we had like a big shock to the cost of feed, which is the major cost on a dairy farm for actually making a milk, we do have some inventories of product that you know can carry us over for a little bit of time. And usually we see the impact of that shock through farms making adjustments to how much milk they produce rather than like, oh my gosh, there's a shortage of milk on the grocery store right now. One of the other things that retail stores do is they do something that we call like price smoothing. Because consumers don't like in general to see like major big spikes in prices. Think about what happened with eggs in the last couple of years. Oh yeah. Think about what happens when you have gasoline that goes up really quickly gets people pretty excited. So when retailers can control that, they like to try and keep it a little bit more smooth out. They will ultimately kind of pass along with their costs goes up. And then when things come down, they'll pass it back down, but a little bit more slowly to kind of make up for that difference. When we look at the total amount of milk produced in America, where's most of it actually going? Like, is it in the cartons we see at the store or does it go to all those other places that we see milk go or sneak its way in? Great question. Anybody who's ordered a pizza in the last couple days has experienced where most of the milk in the United States goes to how many kinds of cheese is cheesy? How about four different kinds of cheese? The new extra most bestest pizza from Little Caesar's is topped with the most cheese and the most pepperoni for the nation's best price. And it's stuffed with melty cheese baked with melty cheese and finished with even more cheese. So it's actually getting close to about 40% of the milk that we produce goes into making cheeses of various kinds. A lot of that is mozzarella cheese that we go on to pizza. And pizza restaurants can also play around a little bit with how much cheese am I going to put on that pizza? Okay, when the price of cheese goes up a lot? The pizzas get less cheesy. They are not as cheesy as they usually are. Yeah, let's do the meat or veggie special thing. It's got a little bit less cheese on it. So there's that kind of demand too and both of them do respond to what's going on with prices. Pizza's in their cheese, am I right? That's it for this week. What's something in your life you want to explain? Call us and let us know. 1-800-618-8545 or shoot an email to [email protected]. If you enjoy this podcast, consider becoming a vox member. Members get to listen to this show with no ads. Head over to vox.com/members to learn more. This episode was produced by Hadi Mahwagdi. It was edited by Avashai Artzi, fact checked by Melissa Hirsch, and engineered by David Tattaswar. Our executive producer is Miranda Kennedy. I'm your host, Jogh1Hell. Thank you so much for listening. I'll talk to you soon. Bye!