Why high petrol prices weigh more heavily on low earners

High gas prices are affecting all American drivers – but low-income households are bearing the brunt.

That’s because low-income households spend a larger proportion of their budgets on transportation costs and other basic necessities like food and energy, compared to wealthier households.

According to the US Energy Information Administration, US gas prices had risen to an average of $4.32 a gallon through March 14, more than $1 a gallon since early 2022.

The war in Ukraine has caused already high oil prices to skyrocket, seeping through to consumers at the pump, although prices have fallen somewhat from recent highs.

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

Federal data from the US Bureau of Labor Statistics confirms this pattern.

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

But those with annual pretax incomes of $30,000 to $40,000 spent, on average, a larger portion (4.1%) of their budgets at the pump — about $1,700 total.

Data shows that as income increases, gasoline spending as a percentage of annual spending goes down.

For example, for people earning more than $200,000, gasoline costs accounted for an average of 2% of total expenses. That’s half of the group’s share of $30,000 to $40,000. (The total spend amount in dollars was almost double at $3,300).

(While the 2020 federal data was the most recent available, the 2019 stats provide a more accurate analysis because the pandemic has skewed gas mileage, Smetters said.)

The trend towards gasoline spending may not be readily apparent to the low paid. For example, those earning less than $15,000 a year spent an average of 3.7% of their budget on gas in 2019 — the same proportion as households earning $70,000 to $100,000 a year.

However, this dynamic comes from car ownership. Low-income earners own fewer cars on average, and therefore fewer of these households use gasoline, which skews the group’s average spending downwards.

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“The $15,000 [group] is so low-income that many of them live in urban areas and don’t own a car,” Smetters said.

Only 61% of households in the lowest-income group own or lease a vehicle, as do 82% of households earning between $15,000 and $30,000. More than 90% of other households own a vehicle.

Higher earners also have more cars on average. The average low-income earner owns or leases one vehicle, while those earning more than $100,000 a year have nearly three.

petrol perspective

Robbie Goodall | moment | Getty Images

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

But here’s one way to think about that difference: It’s roughly equivalent to the amount of money lower-income households spend on meat, poultry, fish and eggs, Smetters said.

“Put another way, if lower-income households could spend the same proportion on gas (and other fuels) as higher-income households, then lower-income households could double their intake of these proteins,” Smetters said.

Spending data for 2019 is a good indicator of spending but does not necessarily reflect household spending in the current environment.

Households can adjust to higher prices by driving less to limit the dent in their wallets. (That’s not possible for everyone, though, especially those who drive to work and can’t work from home; low-income earners are less likely to be able to work remotely than wealthier Americans.)

The sticker price of gasoline hit an all-time high this month. However, it’s not a record high given inflation over the decades – most recently, prices at the pump were higher than the price of gas in 2008, 2011 and 2012, at around $5.31, $4.98 and 4, respectively. $86 a gallon in today’s dollars. according to a CNBC analysis of federal data.

https://www.cnbc.com/2022/03/18/why-high-gas-prices-fall-harder-on-lower-earners.html Why high petrol prices weigh more heavily on low earners

Jane Marczewski

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