American consumers have remained relatively resilient against high gas prices as a result of the war in Iran, according to David Tinsley, managing director and senior economist at the Bank of America Institute.
While discretionary spending was expected to fall as gas prices rose to about $4.50 a gallon, Bank of America’s credit and debit card spending growth data in May showed spending—without gas—still ran close to the strongest it’s been for three or four years, Tinsley said.
“The overall story we found in our data, actually, is that the consumer has been really amazingly resilient to higher gas prices, all told,” said Tinsley, who uses Bank of America’s proprietary data of more than 70 million consumers and small-business accounts to assess consumers.
For some time, lower-income households’ spending growth has been weaker than higher-income households, Tinsley said, though he noted he doesn’t believe that gap has widened in the past few months with the conflict in the Middle East. If anything, he said, the gap may have narrowed.
Lower-income households may be more likely to work in service, leisure and hospitality, construction or other industries that cannot be completed in a work-from-home framework, Tinsley said.
“When you think of a lower-income household’s budget, they have much less flex in it than, say, a higher-income household’s budget, to absorb the gasoline,” he said. “So that’s been a kind of increased headwind to them. But we haven’t overall found, even for lower-income households, that they’ve had to pull back too aggressively on spending growth outside of gas.”
One reason for the latter may be higher tax refunds this year compared with the last, Tinsley said. Bank of America’s data show a bump of roughly 10% in the money in people’s accounts as a result of such refunds, he said.
“I think those higher tax refunds ... have helped people weather the gasoline shock,” Tinsley said. “Back in the end of last year, everybody thought that One Big Beautiful Bill Act higher refunds would probably support spending, and then the gasoline shock came along, and people got a bit blindsided by the gas shock.
“But actually, as of now, it sort of does look like, honestly, that the refunds have supported spending. So there’s a … very important question mark about where we’ll go from here.”
Tax refunds will wane, for example, Tinsley said, and a boost in spending that can likely be attributed to World Cup events in the U.S. will also decline over time, so he thinks “the situation will become more challenging.”
Bank of America’s findings seem to contradict other studies on the impact of high gas prices on household budgets in the U.S., including the results of a Gallup poll published June 25 in which two-thirds of Americans surveyed said fuel costs have caused them financial hardship.
Moody Analytics also estimated that war-induced inflation and its impact on gas, groceries and utilities is costing the average American household several hundred dollars, noted Stephen Miller, professor of economics and director of research at the Center for Business and Economic Research at UNLV.
The demand for gasoline is fairly inelastic, meaning there’s little reduction in the quantity it is purchased even as prices rise significantly, Miller said. The price of crude oil affects, down the line, the price of food and groceries, he said.
“The average person is pretty much aware that grocery prices have gone up—question is, how much? And how much has it affected their budget?” he said. “And we also know that people are eating more at home. … That’s a function of affecting restaurant prices, as well.”
President Donald Trump signed an agreement with Iran in June calling for an end to hostilities and the reopening of the Strait of Hormuz, whose closure prompted the energy crisis, as reported by The Associated Press.
Crude oil still has to come through the Strait of Hormuz, go to a refinery, ship to wholesalers and then to retailers, Miller said. So it takes time for a change in the market to be reflected in the price at the pump.
“The price rise for gasoline tends to be pretty rapid. … The price fall tends to be much slower,” Miller said.
The “gasoline shock” was significant, but was never quite as large as those of financial crises even in the past decade or two, Tinsley said. That may be because in past years, cars were less fuel efficient than they are now, wages were lower and so on, he said. Strong job and wage growth in the U.S. may be another factor in its residents’ resilience to gasoline prices, Tinsley said.
There wasn’t a significant drop in spending when gas prices arose, he said, so it may stand to reason that when gas prices fall, that won’t necessarily boost spending, either.
“So I wouldn’t necessarily be expecting the declining gas prices to lead to an acceleration in spending growth from here, because ... they kind of sucked it up on the way up, and they’ll probably suck it up on the way down as well, without too much change in the underlying sort of picture in terms of consumer momentum,” Tinsley said.
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