NY Fed Highlights K-Shaped Economic Impact at Gas Pumps: A Deep...

(NewsNation) — With gas prices climbing due to the ongoing conflict in Iran, a stark contrast in consumer behavior is emerging. Lower-income Americans are being compelled to reduce their fuel consumption, while those with higher earnings seem largely unaffected at the pump.

According to a recent study by the Federal Reserve Bank of New York, households earning under $40,000 annually have decreased their gasoline usage by 7% in March. Despite this reduction, they still faced a 12% increase in expenditure because of the elevated prices.

Conversely, households with incomes exceeding $125,000 reduced their gas usage by a mere 1%, a change deemed “essentially unchanged.” Nevertheless, their spending on fuel surged by 19%.

These insights underline the phenomenon known as the “K-shaped economy,” where a widening economic gap sees affluent families maintaining their spending habits, while those with less income are forced to tighten their belts.

“With the current energy price shock, a K-shaped pattern in gasoline consumption has opened up much more than before,” researchers at the New York Fed wrote.

The conflict in the Middle East has sent U.S. gas prices to their highest level in four years, marking the biggest spike since Russia invaded Ukraine.

The national average for a gallon of regular was $4.55 on Friday, up from just under $3 before the Iran war, according to AAA data. In California, the statewide average topped $6.

Skyrocketing gas prices fueled inflation in March and have helped push consumer sentiment to a record low.

“Consumers continue to feel buffeted by cost pressures, led by soaring prices at the pump,” Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, said Friday.

Gas price shock looks different from 2022

The New York Fed said the K-shaped response to today’s gas price shock resembles what happened in 2022, but the divide between income groups is even wider this time around.

Back then, gas consumption also fell more among lower-income Americans than wealthier households, while spending rose faster for high earners.

While the trends were directionally similar, the magnitudes of the gaps between income groups were “noticeably smaller” than they were in March 2026.

The trend suggests lower-income households are changing their behavior more in response to higher gas prices than wealthier households. That could mean driving less or “potentially by carpooling or substituting to public transit,” the report noted.

The K-shaped pattern at the pump reflects a broader trend that has emerged across the U.S. economy, from travel and car shopping to dining habits.

Delta Air Lines, for example, is doubling down on premium offerings aimed at wealthier travelers amid strong demand. Meanwhile, Spirit Airlines — once the budget king of the skies — is now out of business.

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NY Fed Highlights K-Shaped Economic Impact at Gas Pumps: A Deep Dive into Disparities

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