Barrons Roundtable panelists discuss what Americans can expect at the pump.
America's domestic budget is under pressure from high electricity prices and new data shows that consumers are turning to debt to offset rising fuel costs.
Report of Bank of America Institute found that low-income households saw the share of income spent on electricity rise to 4.2%, up from 3.9% last year and the highest level for the month of March since 2022, based on aggregated and anonymized Bank of America customer deposit data. In contrast, the average family in the income groups spent about 3.1% of their income on electricity in March, which is an increase from 2.8% compared to the same period last year.
Additionally, about 10% of low-income consumers spent more than 10% of their household income in March on gas as prices rose amid Iran's war banning oil exports from the Middle East, compared to just 6% of high-income households.
“Low-income households spend more as a percentage of their income on electricity simply because they have less discretionary spending space than middle- and upper-income households,” David Tinsley, senior economist at the Bank of America Institute, told FOX Business. “Those two things combined mean that the gas price hikes we've seen are putting a lot of pressure on low-income families.”
GAS PRICES CONTINUE TO OVER $4.50 NATIONWIDE AS IRANIAN DRIVERS DRIVE IRANIAN DRIVERS
The Bank of America Institute found that American households, especially at lower income levels, are seeing their budgets squeezed by higher gas costs. (M. Scott Brauer/Bloomberg via Getty Images)
I war in Iran caused the price of oil to rise above $100 a barrel after trading in the $70 range before the conflict began. That, in turn, caused gasoline prices to rise more than 40 percent, with the national AAA average rising to more than $4.50 a gallon.
The same gas shock has been abused consumer budget as the economy faced the financial crisis in 2008, and began to recover in 2011 and 2012. He also increased after the COVID pandemic when Russia invaded Ukraine in 2022.
“The increase in gas as a share of income right now needs to be kept in perspective. There were even bigger increases and higher peaks in terms of gas as a share of income and a share of spending right after the financial crisis and right after COVID,” Tinsley said. “So this is a painful escalation for people, no doubt, but it's not as big as other incidents.”
GAS PRICE INCREASE HITS POOR HOUSEHOLDS HARDEST, FED STUDY FINDS
The war in Iran has blocked the flow of oil from the Middle East, causing gas prices to rise and impacting consumers. (Giuseppe Cacace/AFP via Getty Images)
American consumers are seeing some relief higher wagesalthough the scale of those benefits varies across income groups and some consumers turn to credit and buy now, pay later to manage their finances during the squeeze.
Tinsley said that while high-income households are seeing strong income growth of more than 5% year over year, low- and middle-income households are not seeing those gains. He noted that among low-income families, wage growth was only 1% in March, while it was 2% for low-income families.
“There are a few other things, moving rooms, that people have,” Tinsley said. “They can borrow more money from their own credit cardand if we look at where people stand in relation to their credit card limits, we know that they are not right now in relation to their credit card limits. The entire position is almost where it was just before the epidemic. “
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“One thing they can do is buy now, pay later,” he said, adding that low- and middle-income families use those methods to. manage their budget.
“The downside of that is, at the end of the day, buy now, pay later smooths out your spending in a few months, so it's not going to make that much of a difference in the overall picture,” Tinsley said. “As it turns out, people who tend to use buy now, pay later tend to have less room to borrow on their credit cards.”
The big tax refund boosted savings for Americans across all income groups, Tinsley said. (Getty Images)
Tinsley said other data from the Bank of America Institute shows that households at lower income levels have more savings in the bank compared to before the The covid-19 pandemic.
“These households have about 10% higher deposits, savings, in their accounts. The reason for that is mainly tax refund“so it's clear that One Big Beautiful has included a lot of incentives for consumers, many of which have come through cashback this year,” he said.
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“Refunds work, give or take, about 10% more and even though people use some of that, they also put some of it in the bank and that helps them deal with this gas shock for a while,” Tinsley said.
