American households, particularly those with lower incomes, are experiencing increased financial pressure due to higher gas prices, according to a report by the Bank of America Institute [1]. The share of income spent on gas by lower-income households rose to 4.2% in March, up from 3.9% a year ago, marking the highest level for March since 2022 based on aggregated and anonymized Bank of America customer deposit data [1]. In comparison, the average household spent about 3.1% of their income on gas in March, an increase from 2.8% the previous year [1].
The report highlights that approximately 10% of lower-income consumers spent more than 10% of their household income on gas in March, compared to just 6% of higher-income households [1]. This surge in gas spending is attributed to the war in Iran, which pushed oil prices above $100 a barrel from the $70 range, resulting in gas prices rising over 40% and AAA's national average exceeding $4.50 per gallon [1].
David Tinsley, senior economist at the Bank of America Institute, noted that lower-income households are more affected because they have less discretionary spending capacity [1]. While the current rise in gas as a share of income is significant, Tinsley emphasized that previous periods, such as after the 2008 financial crisis and the COVID pandemic, saw even larger increases [1].
To cope with the financial strain, consumers are increasingly turning to credit cards and buy now, pay later options [1]. Wage growth has provided some relief, but it is uneven: higher-income households saw wage growth above 5% year over year, while lower-income households experienced just 1% growth and middle-income households 2% through March [1].
CONCLUSION
The surge in gas prices, driven by geopolitical tensions, is disproportionately impacting lower-income Americans, leading to increased reliance on credit and alternative payment methods. While wage growth offers some relief, it remains insufficient for many, especially among lower- and middle-income groups. The market impact is medium, as consumer spending patterns shift in response to persistent fuel cost pressures.