The situation: US consumers are pessimistic as soaring energy prices eat further into household budgets.

Inflation is accelerating, according to US Bureau of Labor Statistics data. Energy costs rose 10.9% MoM and 12.5% YoY in March, while gasoline prices jumped 21.2% MoM—the biggest MoM jump in the 59 years the Bureau has kept records—and 18.9% YoY.

Overall inflation rose 0.9% MoM and 3.3% YoY, accelerating sharply from 2.4% in February—and that’s before the full effects of the war trickle down to other categories, such as grocery prices (which actually fell 0.2% MoM and rose just 1.9% YoY).

US consumer sentiment fell to a record low in April as consumers grew increasingly concerned about the war in the Middle East driving up inflation, per the University of Michigan. Consumers now expect prices to rise 4.8% over the next year, up a full percentage point from March and marking the largest increase since President Donald Trump announced his “Liberation Day” tariffs a year ago.

Zooming out: The war adds to an already complicated retail landscape, where lower- and middle-income consumers were already under pressure as wage growth failed to keep pace with inflation.

While higher-income households’ wages grew 5.6% YoY in March, lower- and middle-income groups’ pay increased just 1.0% and 2.0%, respectively, per Bank of America customer account data. That’s the widest wage-growth gap since 2015.

Consumers are also growing more anxious about the labor market. The perceived probability of losing one’s job in the next 12 months rose by 60 basis points to 14.4% in March, according to the Federal Reserve Bank of New York.

More broadly, the economy entered the year on weak footing. US GDP grew just 0.5% in Q4, while consumer spending rose 1.9%, a sharp slowdown from 4.4% in Q3 and 3.5% in Q2. Spending on goods grew just 0.3%, down from 3% in Q2.

Implications for retailers: We expect a sustained energy shock, in which Brent crude prices are north of $100 a barrel for an extended period, would boost top-line US retail sales growth to 4.8% this year, above our base-case expectation of 3.4%, due largely to higher gasoline prices.