A new study from the Federal Reserve Bank of New York shows that lower-income Americans are cutting back sharply on driving as gas prices soar following the Iran war, yet many are still spending more money at the pump than before.
The report highlights a growing divide in the U.S. economy, with wealthier households largely absorbing higher fuel costs while poorer Americans are forced to change their daily habits just to keep up.
The war with Iran began on Feb. 28, and by the end of March gasoline prices had climbed roughly 25%, according to federal consumer price data. Since the conflict started, prices have surged about 50% overall.
Researchers found that households earning less than $40,000 annually reduced their gas consumption by 7% in March. Even so, they still ended up spending 12% more on gasoline because prices rose so dramatically.
Meanwhile, households making $125,000 or more cut their gasoline use by only 1% while increasing their spending on fuel by 19%.
The findings suggest many lower-income Americans are driving less by combining errands, carpooling, or relying more on public transportation. Wealthier households, on the other hand, appear to have made few major lifestyle changes despite the spike in fuel costs.
Economists say the numbers reflect what has become known as a “K-shaped economy,” where higher-income Americans continue to thrive while lower-income households struggle to keep pace. The term describes an uneven recovery in which financial gains increasingly flow toward wealthier people while economic pressure builds for everyone else.
Researchers at the New York Fed said gasoline spending patterns clearly revealed that divide.
“With the sharp increases in gasoline prices in March, a K-shaped pattern in gasoline consumption emerged,” the report stated, noting that higher-income households maintained much stronger consumption levels than lower-income families.
The gap appears even wider than during the 2022 fuel-price spike that followed Russia’s invasion of Ukraine. Back then, wealthier households cut back more on driving, while government stimulus programs helped cushion the blow for poorer Americans.
Since then, many wealthier households have benefited from rising stock prices and growing real estate values, giving them more financial flexibility to absorb higher costs.
The report estimated that total spending at gas stations jumped 15% in March compared to the previous month. Economists warn that if elevated gas prices continue, consumers may begin pulling money away from other purchases, slowing economic growth.
So far, overall consumer spending has remained relatively steady. Inflation-adjusted spending rose 0.2% in March, slightly below February’s 0.3% increase.
Still, separate data from the Bank of America Institute suggests the burden on poorer households is becoming severe. The institute found that among the lowest-income third of Americans, one in ten households now spends 10% of their income on gasoline alone.
Higher-income households, by comparison, spend just 2.7% of their income on gas.
The institute also found that rising fuel prices are beginning to cut into discretionary spending among poorer Americans. Spending growth on non-essential purchases slowed in March for low-income households, while middle- and upper-income consumers continued increasing their discretionary spending.
The reports together paint a picture of an economy where rising costs are not affecting everyone equally — and where lower-income Americans are being forced to make the biggest sacrifices just to keep moving.
