Facing the most rapid price increases since the early 1980s, many U.S. households are facing difficult choices, including whether to change purchasing habits or dig into savings. For example, between January 3 and April 4, 2022, fuel prices nationally increased by almost one-third. If this lasts the whole year, we might see sustained changes in household spending.

On balance, families built up wealth buffers during the pandemic, suggesting the median American has been relatively well prepared to cope with higher prices, although liquid balances have fallen notably from their peak last year. Additionally, Institute research shows that incomes have been rising fastest at the lower end of the income distribution and have outpaced price growth by a substantial margin.

At the same time, many are being hurt by price increases. Older Americans, for example, have experienced slower income growth and have left the workforce in greater numbers than other age groups since the pandemic began1 Meanwhile, families differ in their consumption patterns, so the higher dispersion in inflation rates across products is landing unequally. Additionally, these price increases are coming at a time when households are grappling with the end of many of the pandemic support programs that helped them manage their cash flow over the past two years, such as the advanced Child Tax Credit and extended Unemployment Insurance support.

In this Take, we look back at Institute analysis that measured differences in households’ response to 25 percent decline in gasoline prices in 2015 and more recent work on the state of household financial health to provide insight into how higher inflation may influence economic outcomes this year.

While the impact of fuel price increases may not be symmetric with a drop in prices, the following lessons from the 2015 episode remain relevant:

  • Impacts differ significantly across the country. For example, in 2015, families in Indianapolis, Tucson, and Dallas-Fort Worth saw a drop in fuel spending equivalent to 1.3 percent of income compared to less than a 0.5 percent drop in DC, Las Vegas, San Francisco, New York City, and Los Angeles. Households in the West and the Northeast tend to be less impacted for two reasons: First, the drop in gas prices in 2015 was much more tempered in California than in other parts of the country. Second, people in some cities spent a higher fraction of their income on gas than in others.  A similar dynamic is occurring today. According to data from the U.S. Energy Information Administration, nationally fuel prices were 28 percent higher on April 4 than Jan 3, but this increase ranged from just 20 percent in New England to 30 percent in the Gulf Coast Region.
  • Fuel spending represents a larger share of household budgets for lower-income families. Although higher income families spend more on fuel in absolute terms, as a fraction of income, the 2015 savings from lower fuel price represented a larger share of income for lower income families (1.4 percent for the bottom 20 percent of households vs 0.4 percent for the top 20 percent). Thus, the recent price increases could represent a greater hardship for lower-income families than higher-income families.
  • Spending on other goods and services shifted somewhat. The 25 percent drop in gas prices generated a potential savings of $632 for middle-income households. Households spent 58 percent of their potential savings—34 percent on non-gas goods and services and 24 percent on gas. Households spent over $200 on non-gas goods and services, primarily on restaurants, retail, and groceries. Households spent $155 (24 percent) of their potential savings from lower gas prices declines at gas stations.  Gains in these categories were offset by declines in Transit spending.  If past is prologue, one small silver lining could be that higher fuel prices might nudge drivers back to public transit, just as transit systems around the country are struggling to recover from the COVID-19 pandemic.

Two other components of consumer spending are also on-the-move: housing and food.

  • Renters, who tend to be to be lower income than homeowners and spend more of their monthly pay on housing costs, will be facing the most severe increases in housing costs in the short to medium term. Rents tend to lag other prices as leases are slow to adjust, so rapid price increases in the housing market and elsewhere have yet to fully pass through to rents. Whereas existing homeowners benefited from their homes appreciating during the pandemic and those who were able to buy in the last two years benefited from historically low mortgage rates, renters are facing an affordability crisis. If they choose to buy a home, they face high prices and rising mortgage rates, while continuing to lease exposes them to rapidly increasing rents. In addition, Institute research found that renters had less savings than homeowners before March 2020, and their relative position did not improve significantly during the pandemic.
  • Food is also a larger component of lower-income Americans’ spending. The Consumer Price Index for food increased by 13 percent from pre-pandemic levels. The share of spending allocated to food is also higher for older and retired individuals, who are experiencing lower income growth than the median worker.

Meanwhile, inflation eats away at the prime savings buffers of financially vulnerable households.

  • Households stockpiled savings worth $2.5 trillion during the pandemic2, with the largest percent rises in liquid balance in the lowest income quartile. Black and Hispanic households, and Americans with lower incomes generally, experienced higher percent increases in liquid balances during the pandemic, though the same was not generally true in absolute dollar terms.
  • However, these forms of savings, while stable, have not advanced with price increases in the same way that home prices and stocks have—asset classes disproportionately held by high-income White households.

For policymakers, the abrupt end of decades of relatively subdued inflation has highlighted a tradeoff of a tight labor market against price stability. When low inflation, and the risk of deflation, was a primary macroeconomic concern, the Fed’s goals of full employment and price stability were mainly complementary. This no longer appears to be the case. The tendency for a tight labor market to support broad-based growth now needs to be weighed against the costs of a high and volatile pace of inflation, which affects households unevenly.  Differences in households’ exposure to consumer prices and disparities in financial positions highlight the importance of granular, data-driven perspectives to guide policy.



See, for example, the Atlanta Fed Wage Growth Tracker and BLS data.


See, for example, the Brookings Institute report “Bolstered Balance Sheets: Assessing household finances since 2019” (March 2022).


This material is a product of JPMorgan Chase Institute and is provided to you solely for general information purposes. Unless otherwise specifically stated, any views or opinions expressed herein are solely those of the authors listed and may differ from the views and opinions expressed by J.P. Morgan Securities LLC (JPMS) Research Department or other departments or divisions of JPMorgan Chase & Co. or its affiliates. This material is not a product of the Research Department of JPMS. Information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which is provided for illustration/reference purposes only. The data relied on for this report are based on past transactions and may not be indicative of future results. J.P. Morgan assumes no duty to update any information in this material in the event that such information changes. The opinion herein should not be construed as an individual recommendation for any particular client and is not intended as advice or recommendations of particular securities, financial instruments, or strategies for a particular client. This material does not constitute a solicitation or offer in any jurisdiction where such a solicitation is unlawful.