America’s widening income gap has become more apparent after a sharp rise in fuel prices linked to the Iran war, with low-income families forced to cut back on driving even as they increase their spending on gasoline, according to a new study by the Federal Reserve Bank of New York cited by the Associated Press.The report showed that while wealthier Americans absorbed higher fuel costs largely with minimal lifestyle changes, poorer households cut gasoline consumption sharply to cope with rising prices.“We found that households have very different experiences with gasoline spending,” researchers at the Federal Reserve Bank of New York wrote.“With the sharp increases in gasoline prices in March, a K-shaped pattern in gasoline consumption emerged, showing faster growth in consumption by high-income households compared to low-income households,” the report said.The war with Iran, which began on February 28, caused a sharp rise in crude oil and fuel prices after unrest in the Strait of Hormuz affected global energy supplies. US gasoline prices rose about 25 percent by the end of March and are now about 50 percent above pre-war levels.According to the study, families earning less than $40,000 annually reduced gasoline consumption by 7 percent in March, but ended up spending 12 percent more on fuel.
High-income families with incomes of more than $125,000 increased their spending on fuel by 19 percent, while reducing gasoline consumption by only 1 percent.The report noted that low-income Americans responded by reducing trips, using public transportation, carpooling, or combining errands, while wealthier households faced little disruption.The disparity was more severe than during the fuel price shock that followed the Russian invasion of Ukraine in 2022, the researchers said.These findings heighten concerns about what economists describe as a “K-shaped economy,” where high-income households continue to gain wealth while lower-income groups suffer from inflation and rising costs of living.The Federal Reserve Bank of New York estimated that overall spending at gas stations rose 15 percent in March from the previous month, which could lead to pressure on discretionary spending and a slowdown in broader economic activity.A separate report from the Bank of America Institute found that among the poorest third of American households, one in ten now spends nearly 10 percent of their income on gasoline. High-income families spend about 2.7 percent of their income on fuel.The institute also noted that discretionary spending growth among low-income households slowed in March, while middle- and upper-income consumers continued to increase spending.
