U.S. household spending on gasoline surged over 15% in March, according to a new Federal Reserve analysis, as rising fuel costs from the Iran conflict tighten consumer budgets and threaten discretionary spending.
U.S. household spending on gasoline surged over 15% in March, according to a new Federal Reserve analysis, as rising fuel costs from the Iran conflict tighten consumer budgets and threaten discretionary spending. The data shows consumers are paying significantly more for fuel, with national average prices climbing above $4.50 a gallon, a level not seen since July 2022.
"This is very much having an effect psychologically. This is really one of the most visual reminders of inflation," Ted Rossman, a Bankrate financial analyst, told Tulsa’s KJRH news. "It's a very obvious reminder that prices are going up, and it's contributing to consumer sentiment ratings that are at or near record lows."
The pain is widespread, though unevenly distributed. Lower-income households, those earning under $40,000 a year, saw spending jump 12% despite cutting real consumption by 7%, the most of any group, the New York Fed reported. In contrast, the highest-earning households, those making over $125,000, spent 19% more while only reducing consumption by about one percent. The national average for regular gasoline has jumped about 52% since the war in Iran began, according to AAA data.
The sustained pressure on wallets is forcing businesses and consumers to adapt, with futures markets suggesting prices could remain near $4 a gallon through the summer. While some companies like Uber and Disney have reported resilient consumer demand, economists expect a broader pullback in discretionary spending if pump prices remain elevated, echoing the consumer response during the 2022 oil shock after Russia's invasion of Ukraine.
The latest analysis from the Federal Reserve Bank of New York highlights a growing disparity in how American households are weathering the recent energy price shock. While overall inflation-adjusted gasoline consumption fell by 3%, lower-income households cut their usage by a steep 7%. Despite this significant pullback—likely through increased carpooling or use of public transit—the group still spent 12% more on fuel in March.
Middle-income earners ($40,000-$125,000) faced a similar, if slightly less severe, squeeze, spending nearly 15% more while cutting back consumption by 4.8%. The data suggests that while Americans are trying to reduce their fuel use, the rapid price increase is outpacing their ability to cut back, eating into household budgets. According to Bankrate, a 42% year-over-year increase in gas prices could add roughly $1,000 to the average household's annual fuel bill.
The ripple effects of higher fuel costs extend deep into the economy, impacting everything from small businesses to multinational corporations. In Tulsa, Oklahoma, florists are feeling the pressure on multiple fronts, from the rising cost of overseas flower shipments to the fuel required for local deliveries.
"It's definitely impacting us. We feel it on the delivery side as well as the supply chain side," Nicki Argo, owner of Mary Murray Flowers, told KJRH. She noted the business is facing a growing number of fuel surcharges on shipments and is working to make delivery routes more efficient to avoid passing all the costs to consumers.
Despite the gloom at the pump, consumer spending in other areas has remained surprisingly resilient. Uber and Disney both posted strong earnings and upbeat forecasts, suggesting that, for now, Americans are continuing to spend on travel, ride-hailing, and entertainment. Uber reported a 5% rise in ride-hailing revenue and projected second-quarter bookings above Wall Street estimates, while Disney saw its theme park revenue grow 7% to nearly $9.5 billion.
However, Disney's finance chief, Hugh Johnston, cautioned that the company remains watchful, acknowledging that persistently high fuel prices could eventually weigh on consumers. The current situation mirrors the oil shock in 2022, where spending eventually rebounded after energy prices declined, suggesting a potential return to normal patterns once the conflict in the Middle East eases.
This article is for informational purposes only and does not constitute investment advice.
