The news: Retail sales rose in April, marking the third-straight month of MoM increases.

• Sales were up 0.5% MoM and 4.9% YoY, per the US Commerce Department.
• Control-group sales, which exclude food services, auto dealers, building materials stores, and gasoline stations and are used to calculate GDP, also rose 0.5% MoM, a larger gain than analysts expected.

The caveats: April’s seemingly positive retail sales report comes with important qualifiers.

The figures are not adjusted for inflation. Prices rose 0.6% MoM in April, according to the US Labor Department—meaning the growth in retail sales largely reflected higher prices rather than stronger demand. While annualized growth is outpacing inflation for the time being, that could quickly shift if companies raise prices to offset skyrocketing energy and other costs.

Larger fuel costs are mostly responsible for growth. Gas station sales increased faster than any other category, rising 2.8% MoM and 20.9% YoY. Consumers have spent an additional $39.2 billion on gas and diesel since February 28, averaging out to roughly $299.29 per household, according to Brown University. With negotiations to open the Strait of Hormuz yielding little progress, prices continue to rise: The national average for a gallon of regular gas rose 25 cents to $4.55 for the week ended May 7, its highest level since 2022, per AAA.

The K-shaped economy remains intact. The gap in spending between higher-income households and the rest of the population widened in April, according to Bank of America data. Those consumers spent 4.9% more YoY, compared with 3.1% and 3.6% growth for lower- and middle-income households, respectively. That trend is likely to hold as wage growth accelerates at the top: Higher-income households saw a 6% increase in after-tax wages in April, the largest rise in almost five years, while middle- and lower-income households had comparatively modest gains of 2.3% and 1.5%, respectively.

Implications for retailers: April’s retail sales report is a mixed bag. While sales rose YoY for 11 of 13 categories tracked, including in discretionary segments like restaurants, apparel, and sporting goods, those increases likely reflect higher prices rather than greater demand. At the same time, the pool of consumers with the funds and confidence to spend is shrinking, pushing retailers to either double down on value or move upmarket to chase growth.

Retailers face a more challenging environment for spending. Elevated oil prices could deliver a nearly $37 billion hit to US core retail sales this year as shoppers shift budgets to accommodate higher gas costs, per our forecast.