The gas price spike is widening the gap between rich and poor

A new study from the New York Federal Reserve showed lower-income households have pulled back on gasoline use, but still spent more money on gas overall because of the higher prices caused by the war in the Middle East.

Meanwhile, upper income households barely cut back at all and absorbed the additional costs. The study adds to growing evidence that economic disparities are being made worse by the spike in gas prices.

Joanne Lee, a Los Angeles resident, said the price board read $6.98 for a gallon of regular gas when she filled up her SUV. One of her children commutes to school by bus.

“It’s doubled… everyone feels it, right?” she said. “We used to go and pick him up more frequently — probably are not doing that as much.”

If gas prices stay high months from now, she said it may have implications on how much she donates to certain causes. Lee’s cuts so far have been minor, but the New York Fed found that the cuts have been more dramatic for lower-income households.

Gasoline use declined 7% for those households in March, the study found. Higher-income households cut back 1%.

“It really does seem that the lower 20 or 30% of the income distribution is really feeling this most acutely,” said Ted Rossman, senior analyst at Bankrate.

Rossman said that’s consistent with the K-shaped economy — lower-income households struggling, while higher-income households are prospering.

But the New York Fed said the disparities are growing even wider this time than in 2022, when gas prices spiked after Russia invaded Ukraine.

“In 2022, this was right after the pandemic, so we had the expanded unemployment insurance benefits,” said Gbenga Ajilore, chief economist at the Center on Budget and Policy Priorities.

There were also expanded tax credits, rebate checks, higher savings, and stronger wage gains, he said.

“So we had people at the lower and middle income in the distribution having more money… so they could weather these price shocks,” Ajilore said.

But this time around, Ajilore said he expects more people to cut costs as gas prices remain elevated.