Who Pays for the Price Spikes
U.S. retail sales rose for a third consecutive month in April, but the pace slowed as higher gas prices tied to the Iran war left consumers with less room for nonessential purchases. Commerce Department data released Thursday showed retail sales increased 0.5% in April from the prior month, down from a revised 1.6% increase in March. The numbers were adjusted for seasonal swings but not inflation, meaning the squeeze on households sits underneath the headline gain.
The pressure landed where it always does: on people trying to stretch wages, refunds, and whatever is left after fuel costs. Excluding sales at gas stations, retail sales rose 0.3% in April, slower than the 0.7% pace excluding gas stations in March. A separate measure that strips out autos, building materials, food services and gas station sales, known as the control group, rose 0.5% in April. Reuters reported core retail sales, excluding autos, gas, building materials and food services, rose 0.5% in April after an upwardly revised 0.8% increase in March.
AP said overall retail-sales growth slowed in April from March, with higher gas prices weighing on nonessential purchases, and Oxford Economics' Michael Pearce said higher tax refunds offset the gas-price impact by about 2-to-1. CNN said retail sales rose for the third consecutive month in April, with consumers continuing to spend despite higher gas prices, while price spikes tied to the Middle East conflict affected sentiment.
The Uneven Ledger
Spending was uneven across categories, showing how the burden of rising costs gets sorted through the retail system. Sales fell 3.2% at department stores, 2% at furniture and home furnishings stores, 0.5% at car dealerships and 1.5% at clothing shops. Business at building material and garden equipment stores rose 0.1%. Online retailers and electronics and appliance stores posted solid gains, and sales at electronics and appliance stores rose 1.4%. Sales at gas stations rose 2.8% in April, down sharply from March’s 13.7% increase. The lone services category in the report, restaurants, rose 0.6%.
Economists had projected a 0.6% increase in retail sales and a 0.2% increase in the control group. The April report showed the average price for a gallon of regular gasoline rose to $4.53 on Thursday, according to AAA, or $1.35 more than a year earlier. The Iran war began in late February and led to the shutdown of the Strait of Hormuz, cutting off one-fifth of the world’s daily oil supply.
Refunds, Wages, and the Next Squeeze
Economists said larger tax refunds from President Donald Trump’s tax cut legislation helped support spending early in the year, but they expect that support to fade. Oliver Allen, senior economist at Pantheon Macroeconomics, estimated that individual income tax refunds in April were $22 billion higher than in the same month in 2025, equal to around 3% of monthly retail sales and slightly bigger than the hit to households from the jump in gas prices over the same period.
Allen said, “Some of this money will have been saved, but much of it has been spent,” and added, “But the flow of refunds will taper dramatically in May, leaving consumers far more exposed to the surge in fuel costs.” He expects a “meaningful pullback” in discretionary spending in the second half of the second quarter. Michael Pearce, chief U.S. economist at Oxford Economics, said higher tax refunds have offset the impact of gas prices by a ratio of around 2 to 1, and wrote, “With refund season behind us and gas prices still creeping higher, that will flip in the months ahead, putting downward pressure on spending growth.”
The report also said U.S. employers added a stronger-than-expected 115,000 jobs in April and unemployment held steady at 4.3%, while weekly applications for unemployment benefits were 211,000, within a historically low range. Consumer sentiment has weakened, with the University of Michigan’s latest consumer survey showing people’s perceptions of the current economic environment plunged earlier this month, owing to a surge in concerns about high prices for personal finances and major purchases.
Bret Kenwell, US investment analyst at eToro, wrote, “April retail sales echoed what we’ve heard across corporate conference calls for weeks now: The US consumer remains resilient despite soaring gas prices,” and added, “Fuel-price spikes typically take a couple of months to work their way into household budgets, so if energy costs stay high, the second half of the year could present a more complicated setup for consumers, the economy, and the Fed.” Coulter Lewis, co-founder of Sunday Lawn and Garden, said, “They’re spending more money on fewer things,” and added, “That trade-down from pro service is like, ‘okay, well we’ve got to make room for these other increases in our life, and so I’m going to try to do this myself.’”