Consumers’ perceived affordability of gasoline rises with income, but not by as much as one might think

Results from the U-M Energy Survey give us unique insights into how consumers feel about the affordability of motor fuel, which is a major concern for many Americans. The overall gasoline affordability index — which we update quarterly in Energy Survey Indices sidebar on our home page — reflects the average view of all consumers nationwide. It blends together the responses of our diverse, nationally representative sample, averaging over their socioeconomic backgrounds as well as gender, race, age and geographic location. 

Naturally, we expect consumers’ incomes to affect how affordable they perceive energy to be. This is true in general, with higher income consumers reporting higher levels of affordability. However, we also find that the perceived affordability of gasoline does not rise as much as one might think given the large spread in household income across the population. 

The chart below shows how the affordability of gasoline varies according to the five income quintiles, where each quintile represents 20% of the population. It plots the gasoline affordability index by quintile of self-reported household income over the 11 quarters of Energy Survey data gathered to date. The patterns through time are similar to the overall trends in the affordability index as previously reported. All consumers felt that motor fuel became much more affordable after gasoline prices fell in late 2014. Perceived affordability peaked this past January, when pump prices had fallen to a national average of $2.09 per gallon. 

aff-ix-g-by-income-thru-apr2016

One thing that stands out is how the affordability index level for the 5th quintile (consumers with the highest incomes) is so much higher than the levels for the 4th and lower quintiles. In contrast, there is no significant difference in gasoline affordability as viewed by respondents in the bottom two quintiles, who comprise the lower 40% of consumers by self-reported income.

Both bottom quintiles have an average gasoline affordability index of 88 over the 11-quarter period, significantly below the 100 level which indicates that gasoline prices would have to double before being seen as unaffordable. The index is in fact 100 for households in the 4th (second highest) income quintile, a level 8 points higher than the middle quintile but 24 points lower than that of the top quintile.

In 2016 so far, that difference in perception between the top and 4th quintiles has grown to 35 points, while the difference between the top income consumers and the bottom two quintiles has reached 57 points. That’s notably greater than the 31 point spread seen over the previous 9 quarters. 

In short, perceptions regarding gasoline affordability tend to diverge as income rises. These findings about a commodity that is a essential expense for most Americans seem to echo the nation’s general concerns about economic inequality.