A recent analysis conducted by the Federal Reserve Bank of New York indicates that escalating gasoline prices are exerting a significantly heavier burden on lower-income households compared to their higher-income counterparts. This disparity in impact stems from differing consumption patterns and the relative proportion of income allocated to fuel.
The surge in energy prices, which reached a four-year high in March, was partly attributed to geopolitical tensions, including the closure of the Strait of Hormuz. This critical maritime chokepoint facilitates the transit of approximately 20% of the global oil supply via tankers. The New York Fed's findings highlight a divergence in how various income brackets adjusted their spending and consumption of gasoline in response to these elevated prices.
According to the study, households with higher incomes saw the most substantial increase in their nominal spending on gasoline. Crucially, their real consumption of gasoline remained largely unchanged when contrasted with pre-conflict spending habits. This suggests that for these households, the increased cost of fuel did not necessitate a significant reduction in the quantity of gasoline purchased.
Conversely, low-income households experienced a different reality. While they also saw sharp increases in their nominal spending on gasoline, this was primarily driven by the higher per-gallon cost rather than an increase in volume. The report details that these households actually decreased their real consumption of gasoline, indicating a pullback in driving or a shift to more fuel-efficient alternatives where possible.
This divergence in consumption patterns has led to what the New York Fed describes as a "K-shaped pattern" in gasoline consumption. This pattern signifies that while nominal spending on gasoline increased across the board, the real quantity of gasoline consumed diverged significantly by income level, with lower-income groups cutting back more substantially.
The New York Fed's report drew upon data from the analytics firm Numerator, which revealed that nominal gasoline spending nationwide rose by over 15% in March. This marked a notable shift from February levels, moving from 10% below the 2023 average to 5.5% above it. This overall increase in dollar amount spent was predominantly a consequence of higher prices, as evidenced by a 3% decline in real gasoline consumption.
Further substantiating these findings, the Advance Monthly Retail Trade Survey indicated that spending at gas stations surged by 14.5% in March. This figure underscores the significant inflationary pressure that rising fuel costs placed on consumer budgets during that period.
Examining the income-based breakdown, low-income households increased their nominal spending on gasoline by 12%. Despite this increase in expenditure, they were the most aggressive in reducing their actual gasoline consumption, purchasing 7% less fuel. The higher prices were the primary driver behind the increased nominal spending, forcing these households to buy less despite spending more dollars.
In contrast, high-income households demonstrated the largest increase in nominal gasoline spending, rising by 19%. This substantial rise in expenditure was coupled with the smallest reduction in real gasoline consumption, which declined by only 1%. This indicates a greater capacity among higher-income individuals to absorb the increased costs without significantly altering their driving habits.
Middle-income households occupied a middle ground, exhibiting moderate increases in nominal spending and corresponding decreases in real consumption at the gas pump. This segment of the population also adhered to the prevailing K-shaped consumption trend, reflecting a balanced response to the rising fuel prices.
The New York Fed economists noted that the K-shaped pattern observed in response to the March 2026 energy price shock was more pronounced than that seen following the 2022 energy price increases triggered by Russia's invasion of Ukraine. They elaborated that higher-income households managed to reduce their real gasoline consumption only modestly while considerably increasing their spending on gasoline compared to the previous year.
"In contrast, lower-income households increased spending by much less and decreased real consumption by much more, potentially by carpooling or substituting to public transit where available," the economists stated. This suggests that lower-income consumers are more likely to adopt cost-saving measures such as carpooling or utilizing public transportation, options that may not be as readily available or practical for all higher-income households.
