Impact of Gas Prices on Households Varies by Income Level

A recent report from the Bank of New York, part of the federal reserve system, highlights the differing effects of rising gas prices on households based on their income. The analysis comes in light of soaring energy prices that began hitting a four-year peak in March, an increase that followed tensions from the Iran war and the resultant closure of the Strait of Hormuz, a critical passage for oil exports.

The findings show that high-income households increased their nominal gas spending the most, yet their real consumption remained fairly stable compared to patterns prior to the war. In contrast, low-income households faced a different reality; while their nominal spending on gas surged due to higher prices, they actually consumed less fuel than before, illustrating a K-shaped trend in gas consumption across income levels.

Gas Prices Surge Amid Tensions

A survey conducted by the New York Fed indicates low-income households are notably less likely to cut back on gasoline purchases. This consumption pattern correlates with the energy price hikes observed post Russia’s invasion of Ukraine in 2022. Data reveals that nominal gas spending leapt over 15% in March, reflecting prices trending significantly higher than those seen earlier in the year.

Although real consumption of gasoline decreased by 3%, spending at gas stations jumped by 14.5%, according to the Advance Monthly Retail Trade Survey. On the other hand, Chevron’s CEO stated that the economy may inevitably slow down as oil supplies become compromised due to geopolitical events.

Varying Spending Trends Across Income Groups

Interestingly, while high-income households experienced a 19% increase in nominal gas spending, they only reduced their real consumption by a slight 1%. In contrast, low-income households, while seeing only a 12% increase in their gas spending, cut their actual consumption by 7%. This disparity highlights how different income levels react to inflationary pressures.

Middle-income households displayed a similar trend as low-income households; their nominal gas spending increased but real consumption decreased, further emphasizing the K-shaped consumption pattern evident in gas spending during March 2026. Economists explained that, compared to the shocks experienced in 2022 from the Ukraine crisis, the current K-shaped trend appears more pronounced.

“High-income households have managed only a slight reduction in real gas consumption, while their spending rose significantly compared to last year,” economists noted. “Conversely, low-income households struggle with much smaller increases in spending and larger declines in real gas consumption due to shifts towards carpooling and public transportation.”