Gas Prices Pressure American Households
American families are feeling the crunch from rising gasoline costs, and recent data indicates that many are resorting to credit to alleviate the impact. A report from the Bank of America Institute highlights that low-income households now allocate 4.2% of their income to gas, a noticeable increase from 3.9% last year. This marks the highest percentage for March since 2022. In comparison, households across all income brackets together spent about 3.1% of their income on gas in March, up from 2.8% during the same period last year.
Interestingly, roughly 10% of low-income consumers directed over 10% of their household income towards gasoline in March. This contrasts with just 6% of higher-income households grappling with similar expenses, as fuel prices escalated amid oil shipment restrictions stemming from the ongoing conflict in Iran.
David Tinsley, a senior economist at Bank of America Research Institute, observed, “Low-income households inevitably have to spend a larger share of their income on gas because they simply don’t have as much leeway in their budgets.” He noted that the surge in gas prices disproportionately impacts these households.
Nationwide Gas Prices Exceed $4.50 Amid Iranian Tensions
As the war in Iran continues, crude oil prices—which hovered around $70 before the conflict—have surged to over $100 per barrel. Consequently, gas prices have skyrocketed by over 40%, with the AAA national average exceeding $4.50 per gallon.
This trend resembles the economic challenges following the 2008 financial crisis and again during the recovery phases in 2011 and 2012. Increased gas prices were also closely tied to the economic rebound from the COVID-19 pandemic, particularly following the Russian invasion of Ukraine in 2022.
Tinsley remarked, “It’s crucial to view the current gas price increases in a broader context. In the past, there have been even steeper and more substantial spikes immediately following the financial crisis and the pandemic. While the present situation is undeniably tough, it’s not the worst we’ve seen.”
Fed Survey Reveals Impact of Rising Gas Prices on Low-Income Households
American consumers are navigating these challenges with varying degrees of robustness. Although some households are benefiting from higher wages, which have risen by over 5% year-on-year for high-income earners, the same isn’t true for low- and middle-income earners. Tinsley noted that wages for low-income households have only inched up by 1%, while middle-income households saw a modest rise of 2% through March.
“People have some flexibility left,” he indicated, suggesting many are using credit cards for their purchases. Interestingly, consumers’ reliance on credit appears stable compared to pre-pandemic levels.
Average Tax Refunds Rise, Offering Some Relief
Tinsley also pointed out that the current trend of “buy now, pay later” is becoming a popular choice, especially among low- to moderate-income families, enabling them to manage their budgets during difficult times. However, he cautioned that while this may offer temporary relief, it doesn’t alter the larger financial picture—it’s merely deferring expenses over a few months.
“Those who adopt the buy now, pay later mentality often carry less credit card debt,” he added, implying that this could be a double-edged sword.
Interestingly, an upside to the situation is the increased average tax refunds. According to IRS data, these refunds have jumped nearly 11% from the previous year, resulting in higher overall savings for Americans. Tinsley pointed out that households now generally hold about 10% more in savings compared to before the COVID-19 crisis, and this added cushion could help during these turbulent times for fuel costs.
“Tax refunds are a significant factor here. With refunds up by around 10%, people are not just spending but also saving some of that money, which might provide a temporary buffer against the rising gas prices,” he concluded.
