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Gas Prices & the Middle Class Squeeze -ASK THE EXPERT How are rising gas prices affecting household budgets? Is there an end in sight to the middle-class squeeze? And how can we ease the strain on America's families? Center for American Progress Senior Fellow Christian Weller answers the call in the latest installment of CAP's ASK THE EXPERT series. This summer is the summer of pain. Families across America are struggling with higher prices for gas and food along with record unemployment rates, flat wages, and the deepening housing crisis. In April 2008, gasoline prices easily shattered an inflation-adjusted record that had stood since March 1981, and they have only continued to soar since then, hitting new record highs almost weekly. Ever-higher food prices, which rose 22.7 percent from March 2001 to April 2008, are taking another bite out of families' wallets. The aggregate figures show that this is not an isolated case: Gasoline spending currently rivals record highs from the early 1980s. In the first quarter of 2008, families spent, on average, 4.0 percent of their after-tax income on gasoline, the highest level since the fourth quarter of 1983. Higher gasoline expenditures are especially painful to people in rural areas. Families living in rural areas have an average commute to work that is four miles greater than urban families. Also, in 2006, rural households spent 6.8 percent of their average annual expenditures on gasoline and motor oil, while urban households spent 4.4 percent. Increased gasoline expenditures disproportionately affect lower-income families. The second lowest income quintile devoted 5.4 percent of their average annual expenditures to gasoline and motor oil in 2006, while the highest income quintile devoted just 3.7 percent. Minorities are particularly affected by soaring prices at the pump. In 2006, Hispanic households devoted 5.4 percent of their average annual expenditures to gasoline and motor oil purchases, while black households devoted 5.0 percent, and white households devoted 4.5 percent. Families are faced with the challenge of trying to make adjustments to their budgets as prices rise and incomes fall. But personal savings are already close to zero, and families have borrowed record amounts to make ends meet in recent years. That leaves little room to shift around expenses and no savings to dip into as times are getting tough. It also makes borrowing more money difficult, since many families already have large bills to pay to their creditors. Families will therefore have to cut back on other spending as gasoline and food prices soar.
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