Prices are displayed on a gas station sign in Washington, DC, USA on May 1, 2026.
Annabelle Gordon Reuter
Low-income consumers are compensating for higher gasoline prices by buying less, while higher-income consumers are not changing their behavior at all despite rising costs, according to a study released Wednesday by the New York Fed.
In fact, during the energy price spike in March, households with annual incomes of less than $40,000 saw the smallest increase in gas spending of all income groups. The group accelerated nominal gas spending by just 12%, but this was the result of a 7% reduction in consumption, according to a blog post by New York Fed researchers.
In contrast, high-income households, defined as those with an annual income of $125,000 or more, saw their spending increase by 19%, as their real gas consumption decreased by only 1%.
“Therefore, a K-shaped consumption pattern emerged strongly in March 2026, both in nominal and real gasoline spending,” researchers Rajashri Chakrabarty, Tu Pham, Beck Pearce and Maxim Pinkowski said in a post.
The so-called K-shaped economy is a byproduct of the post-corona era. Economists point out that the growth rate for the lower classes is significantly lower than for the wealthy, who have benefited from soaring asset values such as stocks and real estate.
Inflation is also a major cause of the disparity in growth rates.
Consumer prices have increased about 28% since March 2020, when the pandemic was first declared, according to data from the Bureau of Labor Statistics. At the same time, average hourly wages have only grown by 30%, leaving wages essentially flat.
Federal Reserve Chairman Jerome Powell has repeatedly noted that the current era of inflation is having a far greater impact on those who cannot afford higher prices. Prices have remained above the Fed’s 2% inflation target for the past five years.
The Fed’s latest research shows that the various effects of the K-shaped economy have been felt more markedly during periods of rising prices. In the post-pandemic economy, energy prices rose by 56%. Pump prices rose nearly $1 a gallon in the March period after the Iran war broke out, to an average of $3.81, and are now $4.30, according to the Energy Information Administration.
“The current energy price shock has made the K-shaped pattern of gasoline consumption much more widespread than before,” the New York Fed said.
“Compared to 2023, high-income households reduced their real gas consumption by a small amount and their gasoline spending increased significantly. In contrast, low-income households increased their spending by a large amount by carpooling and substituting public transport when possible, and their real consumption decreased by a large amount,” the researchers added.
The study also found that this trend is similar in direction to the energy surge caused by Russia’s invasion of Ukraine in 2022, “despite the quantitatively larger gap in consumption trends in this event.”
The study used a panel of 2,000 respondents and found that overall gasoline spending increased by 15% in March.
