A surge in gasoline prices driven by conflict has intensified the "K-shaped divergence" within the US economy, disproportionately pressuring lower-income households.
An analysis released by the Federal Reserve Bank of New York on Wednesday revealed that as the average gasoline price surpassed $4 per gallon by the end of March, lower-income Americans began reducing their gasoline consumption, while higher-income groups largely maintained their purchasing patterns.
Researchers stated, "As gasoline prices rose sharply in March, gasoline consumption exhibited a K-shaped pattern—consumption by higher-income households grew faster than that by lower-income households."
Data from the American Automobile Association indicates the current average gasoline price is $4.54 per gallon, the highest level since July 2022. However, researchers found that the divergence in spending patterns between different income groups in March was significantly greater than the gap observed during the period of oil price increases following Russia's invasion of Ukraine in 2022.
Lower-income households, defined as those with annual incomes below $40,000, increased their nominal gasoline spending by 12%. This was the smallest increase among a range of income groups, while their actual gasoline consumption fell by 7%.
Households with annual incomes exceeding $125,000, classified as high-income by the researchers, increased their gasoline spending by 19%, largely because they barely reduced consumption.
Data from refiners and the US Energy Information Administration show that gasoline demand remained resilient during the initial months of the conflict. However, the decline in actual consumption by lower-income Americans may indicate the emergence of so-called "demand destruction"—where consumers reduce consumption due to rising prices or supply constraints. Traders and market participants have been wary of this trend since the early stages of the conflict.
The analysis evaluated a survey of 200,000 respondents conducted by analytics firm Numerator, examining their spending at gas stations in March, shortly after the outbreak of conflict in the Middle East.
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