The data point: The average tax refund amount is $346 higher than last year, with the typical refund rising 11.1% YoY to $3,462, per IRS data for the week ended April 3.

Why it matters: TJX and other retailers had expected this year’s larger tax refunds to put more money in consumers’ pockets, providing a short-term boost to discretionary spending. But rising gas prices are blunting that tailwind. The national average gas price is $4.12, up 12% MoM and 29% YoY, per AAA.

An analysis conducted in March by the Stanford Institute for Economic Policy Research estimates that elevated gas prices will cost the average household an additional $740 this year. That means higher tax refunds may be more than offset by rising fuel costs.

Zooming in: The average tax refund distorts the picture, as the gains from the Trump administration’s tax and spending bill are not evenly distributed.

Middle- and high-income households in high-tax states benefit from tax code changes such as the State and Local Tax deduction cap increasing from $10,000 to $40,000 for single and joint filers under the One Big Beautiful Bill Act. That provision is unlikely to affect lower-income households, which are more likely to have no federal income tax burden and therefore won’t benefit from the added deductions.

As a result, the tax refunds could reinforce the K-shaped economy. Low- and middle-income household wages grew just 1.0% and 2.0% in March, compared with higher-income households, which rose 5.6%, per Bank of America Institute.

Implications for retailers: Even before the Iran war, driving demand was a challenge for many retailers given the K-shaped consumer. Since February 28, those challenges have only become more pronounced. While higher gas prices may lift headline retail sales, that growth is misleading. We expect a sustained energy shock, with Brent crude above $100 a barrel, to push total retail sales growth to 4.8% this year, above our 3.4% base case, largely due to fuel spending. At the same time, underlying demand is weakening, with core retail sales, excluding gas and autos, likely to slow to 3%, well below our 3.7% forecast, as purchasing power erodes.

Energy costs act like a tax on fixed expenses, leaving consumers with less room to trade down or shift spending. The result is a sharper pullback in discretionary categories.

To keep consumers spending, retailers need to rely on sharper pricing, more targeted promotions, and assortments that resonate with increasingly budget-constrained shoppers.