Gas Price Surge Widens Economic Gap Between Income Groups

Spiking gas prices following the Iran war have exacerbated economic disparities in the US, with lower-income households reducing consumption but still spending more on fuel. According to a report from the Federal Reserve Bank of New York, higher-income groups increased their gas spending by 19%, while barely cutting usage, whereas poorer households cut consumption by 7% but spent 12% more.

The disparities between how different income groups reacted were larger than in 2022 when a similar gas-price shock occurred after the Russian invasion of Ukraine. The report suggests that wealthier households have seen significant increases in the value of their stock and real estate holdings since then, further widening the economic gap.

Overall gas consumption fell by 3% in March, but as of Tuesday, gas prices had leapt 50% since the war began. Lower-income Americans, defined as those earning less than $40,000, have cut back on driving through carpooling or taking public transportation. In contrast, wealthier households have made few changes to their consumption habits.

The New York Fed report estimates that total spending at gas stations jumped 15% in March from the previous month. If this trend continues, it will siphon money away from other areas, reducing overall inflation-adjusted spending and slowing the economy. Despite these challenges, consumer spending adjusted for price changes ticked up slightly in March.

The study used a panel of 2,000 respondents and found that gasoline prices increased nearly a dollar per gallon after the start of the Iran war, reaching an average of $4.30 per gallon. The researchers noted that higher-income households have reduced real gas consumption only modestly and increased gasoline spending considerably compared with 2023. In contrast, lower-income households increased spending by much less and decreased real consumption by much more.