Soaring gas prices have put the brakes on the spending habits of millions of Americans, hitting their wallets hard and fueling America’s persistent economic inflation-driven K-shaped divide, according to a new study by Federal Reserve economists.
The energy price shock from the Iran war has caused what the study of March gas consumption shows is the highest gap to date in U.S. gas spending, severely curbing the purchasing power of lower-income households at the pump.
And that gap is expected to grow with higher inflation spikes as the supply chain continues to be restrained in the dispute over the Strait of Hormuth.
The study by the New York Fed looked at gas consumption during March 2026, the first full month of the war.
“Higher-income households have reduced real gas consumption only modestly and increased gasoline spending considerably compared with 2023,’’ the study said.
“In contrast, 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,’’ the study reported, adding that “middle-income households had intermediate increases in nominal spending and decreases in real consumption at gas stations.’’
Energy shock fuels higher gas prices at pump
The NY Fed analysis examined 200,000 respondents from Numerator, an analytics firm, on their spending at gas stations in March, immediately following the start of the Iran war.
U.S. gasoline prices have topped $4.50 a gallon for the first time since July 2022, extending their climb higher as drivers face further strain from the prolonged Middle East conflict, Bloomberg reported.
The nationwide average retail price for regular unleaded gasoline rose to $4.54 a gallon on May 5, according to the American Automobile Association. It is now about 50 cents shy of the record $5.01 set in June 2022.
On a seasonal basis, prices are already at an all-time high for this time of year.
President Donald Trump has repeatedly promised that pump prices will fall after the Iran War ends, Bloomberg reported. But the longer they remain elevated, the greater the political risk for the Republican Party headed into the midterm elections this November.
Gasoline prices are highest in California, where motor fuel has topped $6 a gallon, and they have risen rapidly in the Midwest, with some states approaching the $5 mark, Bloomberg indicated.
Elevated pump prices add to economic pain for drivers,stoke inflation, and crush consumer sentiment.
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Estimates of summer gas supplies raise concern
Morgan Stanley analysts wrote in a May 5 note that gasoline stockpiles are expected to fall below 200 million barrels by the end of August, Bloomberg reported.
The projections for record seasonal low fuel inventories are the latest indication that the global energy supply crunch from the Iran war appears set to continue for months to come.
“The U.S. gasoline market is genuinely tight and tightening further into summer,” Morgan Stanley analyst Martijn Rats and strategists Charlotte Firkins and Amy Gower wrote.
Latest inflation figures show increase in energy prices
The Bureau of Economic Analysis released the March 2026 Personal Consumption Expenditures — the Fed’s preferred inflation gauge — on April 30, showing an acceleration in headline inflation largely driven by energy costs.
- Headline PCE(year-over-year): 3.5%, up from 2.8% in February
- Core PCE (year-over-year): 3.2% (excluding food and energy), up from 2.9% in February
Related: AAA gas prices reveal a new trend for Americans
Economists at Nationwide, a financial firm, expect the inflation rate to peak sometime this summer at around 4.5%, more than double the Federal Reserve’s 2% target, The New York Times reported.
The primary measure of economic growth, gross domestic product, is adjusted for inflation.
Rising fuel costs are therefore expected to weigh on overall growth in the short term.
Gas spending tracks “K-shaped” economic trends
The NY Fed report’s title, “A K‑Shaped Pattern at the Pump,” refers to what economists have broadly been calling the “K-shaped” state of the economy.
This describes how higher-income households thrive and drive economic growth, while those at the bottom slide in comparison, The New York Times explained.
Low-income households, or those earning less than $40,000 a year, saw a 12% increase in their nominal gas spending in March 2026.
That was the smallest jump among income cohorts, but it came alongside a 7% drop in real gas consumption.
Households making more than $125,000 a year, which the researchers defined as high income, increased their spending on gas by 19%, in large part because they barely reduced their consumption.
The New York Fed’s analysis noted that the K-shaped gasoline consumption patterns “qualitatively match” the unequal trend that occurred after the spike in energy prices at the start of the Russia-Ukraine war in 2022, the last time gasoline and crude oil prices were this elevated.
Related: Surging gas prices will cost Americans $857 more in 2026
