Because high gas prices fall harder for lower incomes

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Because high gas prices fall harder for lower incomes

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High gasoline prices are impacting all American drivers, but low-income families bear the brunt.

This is because low-income people channel a larger share of their budgets into the costs of transportation and other basic necessities, such as food and energy, than wealthier families.

Gas prices in the United States had risen to $ 4.32 per gallon, on average, as of March 14, more than $ 1 per gallon since early 2022, according to the US Energy Information Administration.

The war in Ukraine has led to already high oil prices to rise, dropping consumers at the pump, even as prices have fallen slightly from recent highs.

“You see a lot of poor people, especially the rural poor who drive a lot, being hit hardest,” said Kent Smetters, an economist at the University of Pennsylvania and faculty director of the Penn Wharton Budget Model.

Federal data from the United States Bureau of Labor Statistics confirm this pattern.

In 2019, Americans spent an average of 3.3% of their budgets (nearly $ 2,100) on gasoline, motor oil and other fuels. (Gasoline makes up more than 90 percent of this category, Smetters said.)

But those with $ 30,000 to $ 40,000 in annual pre-tax income spent on average a larger portion (4.1%) of their budgets at the pump – about $ 1,700 in total.

Spending on gasoline as a share of annual spending tilts down as income rises, the data show.

For example, gasoline costs accounted for 2% of total spending for those with more than $ 200,000 in income, on average. That’s half the group’s fee of $ 30,000 to $ 40,000. (The total dollar spending amount was nearly double, at $ 3,300.)

(Although the 2020 federal data was the latest available, the 2019 statistics offer a more accurate analysis as the pandemic skewed gasoline consumption, Smetters said.)

The trend in gasoline spending may not seem immediately obvious for lower incomes. For example, those with less than $ 15,000 in annual income spent an average of 3.7% of their budget on gas in 2019, the same share as households earning $ 70,000 to $ 100,000 annually.

However, that dynamics results from the ownership of the car. Low-income people own fewer cars on average and therefore less than those households use gasoline, distorting the group’s average spending.

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“The $ 15,000 [group] it’s low-income enough that many of them live in urban areas and don’t own a car, ā€¯Smetters said.

Only 61% of households in the lowest income group own or rent a vehicle, as well as 82% of those with income between $ 15,000 and $ 30,000. More than 90% of other households own a vehicle.

The highest incomes also have more cars, on average. The lowest incomes own or rent a vehicle, on average, while those earning more than $ 100,000 a year have nearly three.

Petrol brochure

Robbie Goodall | time | Getty Images

Some may consider a 2 percentage point difference between high and low incomes in the share of annual gasoline expenses to be negligible.

However, here’s one way to think about that difference: It’s roughly equal to the amount of money low-income families spend on meat, poultry, fish, and eggs, Smetters said.

“In other words, if low-income households could spend the same share of higher-income households on gas (and other fuels), low-income households could double their intake of these proteins,” Smetters said.

Spending figures for 2019 are a good indicator of spending, but they don’t necessarily reflect household spending in the current environment.

Families can adjust to higher prices by driving less to limit the dent on their wallets. (However, this isn’t possible for everyone, especially those who drive to work and can’t work from home; low-income workers are less likely to be able to work remotely than wealthier Americans.)

The price of the gasoline sticker hit an all-time high this month. However, that’s not a record when inflation over the decades is taken into account: more recently, pump prices were highest in 2008, 2011 and 2012, when gasoline reached around $ 5.31, $ 4, respectively. , 98 and $ 4.86 per gallon in today’s dollars, according to a CNBC analysis of federal data.

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