Wells Fargo expects energy price spikes to squeeze low-income consumer spending

Low-income households will likely reduce spending on non-energy categories in the second half of the year to offset rising oil prices. Gas costs now represent 75% of total debit and credit card spend for these consumers, up from 6% of debit and 4% of credit spend before the price increase. This shift follows a pattern where consumers typically take several months to adjust their budgets after energy spikes.

CEO Charles Scharf noted that while the aggregate U.S. consumer remains resilient, the population is increasingly bifurcated. Upper-income households continue to spend on discretionary items supported by cash buffers and home equity. Lower-income households, however, are more exposed to higher interest rates and energy prices. Beyond direct fuel costs, the bank expects higher energy prices to increase the cost of other goods and services. The ultimate impact on credit performance remains unclear, though current improvements in auto and credit card delinquencies provide a window for consumers to adjust their behavior.