U.S. retail sales rose more than expected in March, fueled in large part by a sharp increase in gasoline prices tied to the ongoing Iran conflict, according to data released Tuesday by the U.S. Department of Commerce.

Retail sales jumped 1.7% for the month, the largest increase since March 2025, following an upwardly revised 0.7% gain in February. Economists had forecast a smaller 1.4% rise, making the latest figures a notable upside surprise.

Much of the increase was driven by higher prices rather than stronger consumer demand. Sales at gas stations surged 15.5%, the biggest jump since tracking began in 1992, as fuel costs spiked amid geopolitical tensions. Data from the U.S. Energy Information Administration showed gasoline prices climbed more than 24% during the month, with AAA reporting an increase of roughly $1 per gallon.

The broader inflation picture reinforced that trend. The Consumer Price Index rose 0.9% in March, with energy costs accounting for a significant portion of the increase.

Despite the inflationary pressure, consumer spending remained resilient. Economists pointed to higher tax refunds as a key support, helping households absorb rising costs. Internal Revenue Service data indicated average refunds were up compared to last year, providing a temporary boost to disposable income.

Year-over-year, retail sales climbed 4.0%, signaling continued momentum in consumer activity even as economic uncertainty grows.

Still, there are warning signs beneath the headline numbers. Spending on discretionary categories showed signs of weakening. Restaurant and bar sales, often viewed as a key indicator of household financial health, rose just 0.1%, while categories like clothing and sporting goods saw little to no growth.

Economists caution that sustained increases in fuel costs could begin to crowd out other spending in the months ahead. Estimates from the Stanford Institute for Economic Policy Research suggest higher energy prices could add hundreds of dollars to annual household expenses.

Core retail sales, which exclude volatile categories such as autos, gasoline, building materials, and food services, rose 0.7% in March. This measure is closely tied to the consumer spending component of GDP and suggests moderate underlying growth.

With inflation still elevated and geopolitical risks ongoing, analysts expect the Federal Reserve to maintain its current interest rate stance in the near term.

While strong on the surface, March’s retail data underscores a key reality: much of the growth is being driven by higher prices, not necessarily stronger demand—raising questions about how long consumers can continue to power the economy under mounting cost pressures.