WASHINGTON – Lower-income Americans sharply reduced their gas consumption in the month following the Iran war, yet spiking prices still forced them to spend more at the pump, worsening the economy's economic disparities, new research released Wednesday showed.
Higher-income households, meanwhile, ratcheted up their spending on gas while barely reducing their consumption, according to a report from the Federal Reserve Bank of New York. Middle-income households fell in-between.
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The gaps between how each group reacted were larger than in 2022, when a similar gas-price shock occurred after the Russian invasion of Ukraine, the report found. Higher-income households cut back more on their gas consumption four years ago than in March, while poorer households likely benefited more from government stimulus programs in 2022.
The figures suggest the gas-price surge has worsened what many economists call the “K-shaped economy." The K-shape label refers to upper-income Americans continuing to do well while lower-income households fall behind. The disparate outcomes can help explain the generally gloomy attitude most Americans have toward the economy even as headline figures, such as the unemployment rate and economic growth, remain mostly solid.
“We find that households had very different experiences with gasoline spending,” researchers at the New York Fed wrote. “With the sharp increases in gasoline prices in March, a K-shaped pattern in gasoline consumption emerged—showing faster consumption growth for high income households relative to low-income households.”
The Iran war began Feb. 28, and in March gas prices rose about 25%, according to government consumer price data. Overall gas consumption, according to the New York Fed, fell 3%.
Poorer households, defined as those earning less than $40,000, cut their gas consumption by 7%, the report found, but still spent 12% more on gas in March. Higher-income households, defined as those earning $125,000 a year or above, lifted their spending on gas 19% in March, while reducing their overall consumption of gas just 1%. The report didn't specify the middle-income figures.