Lower-income consumers are compensating for higher gas prices by buying less fuel while those in higher-income brackets have barely changed their behavior despite soaring costs, according to research released Wednesday by the Federal Reserve Bank of New York.

Market Context

The findings arrive amid broader concerns about economic inequality in the post-pandemic recovery. Energy prices have climbed 56% since March 2020, outpacing overall consumer price increases of 28%. Meanwhile, average hourly earnings have grown only 30%, leaving wages essentially flat in real terms when adjusted for inflation.

Analysis

"Thus, the K-shaped consumption pattern in both nominal and real gasoline spending was strongly evident in March 2026," researchers Rajashri Chakrabarti, Thu Pham, Beck Pierce and Maxim Pinkovskiy said in a blog post. The term references how economic recovery has bifurcated along income lines since the Covid-19 pandemic began.

During the March energy price spike following the start of the Iran war, households earning less than $40,000 annually increased nominal gas spending by just 12%, the product of cutting real consumption by 7%. High-income households defined as those earning more than $125,000 raised their spending by 19%, trimming actual gas use by only 1%.

"With the current energy price shock, a K-shaped pattern in gasoline consumption has opened up much more than before," the New York Fed paper noted. "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."

Fed Chair Jerome Powell has repeatedly pointed out that the current era of inflation has had a disproportionate impact on those least able to afford higher prices. Consumer prices have run ahead of the Fed's 2% target for five consecutive years.

Key Numbers

- Households earning under $40,000: 12% increase in nominal gas spending, 7% decrease in actual consumption

- Households earning over $125,000: 19% increase in nominal gas spending, only 1% decrease in actual consumption

- Overall gasoline spending increased 15% in March across all income groups

- Average gasoline price reached $3.81 during the March spike, now at $4.30 per gallon

- Energy prices up 56% since pandemic began; overall consumer prices up 28%

- Wages have risen only 30% since March 2020, essentially flat in real terms

What to Watch

The study used a panel of 2,000 respondents and found the trend directionally mirrors the energy spike when Russia invaded Ukraine in 2022, "even though the gap in consumption trends during the current episode is quantitatively larger." Traders should monitor whether sustained pump prices continue widening the disparity between income brackets, potentially influencing consumer spending across broader retail categories. The EIA data showing prices now at $4.30 will be critical to track against monthly inflation readings and Fed policy deliberations.