Retail sales jump as gas prices surge during Iran war

U.S. retail sales surged in March, but much of the increase came from a sharp rise in fuel costs as the Iran war drove gas prices higher.

Sales climbed 1.7% from February, the strongest monthly gain in more than three years, according to data released Tuesday by the U.S. Department of Commerce. The report offers the clearest snapshot yet of how the conflict is reshaping consumer behavior.

Gas prices fuel headline growth

A significant share of the increase was tied to spending at gas stations, where sales jumped 15.5% during the month.

Strip out fuel costs, and the picture looks more modest: retail sales rose just 0.6%.

The war — now in its eighth week — has disrupted global energy markets, particularly through the closure of the Strait of Hormuz, a key passage for roughly one-fifth of the world’s oil supply.

That shock pushed U.S. gas prices above $4 per gallon for the first time since 2022, squeezing household budgets even as overall spending climbed.

Signs of resilience — and early strain

Despite higher fuel costs, consumers continued to spend across several categories.

• Department store sales rose 4.2%
• Furniture and home furnishings increased 2.2%
• Online retail gained 1%
• Electronics and appliances edged up 0.9%

Still, cracks are beginning to show. Restaurant spending — a key indicator of discretionary demand — rose just 0.1%, suggesting households may be cutting back in certain areas.

“Overall, the American consumer is still healthy,” said Heather Long, chief economist at Navy Federal Credit Union. But she warned that the boost from tax refunds may be temporary.

Inflation pressures complicate outlook

Rising energy costs are already feeding into broader inflation.

Consumer prices increased 3.3% year-over-year in March, with a 0.9% monthly jump — the largest in nearly four years.

That creates a difficult balancing act for the Federal Reserve, which typically keeps interest rates elevated when inflation is rising.

Higher borrowing costs could, in turn, slow consumer spending in the coming months.

Consumers shift from wants to needs

Economists say the surge in spending may mask a deeper shift in behavior.

As fuel costs eat into disposable income, many households — particularly lower-income consumers — are prioritizing essentials over discretionary purchases.

“People are shifting from wants to needs,” said Bryan Eshelman, a retail analyst at AlixPartners.

Data from Placer.ai shows that foot traffic at essential retailers, such as grocery stores, has outpaced discretionary categories for several weeks, though recent seasonal factors like tax refunds and spring travel briefly reversed the trend.

Outlook: growth under pressure

The March data reflects a moment of resilience, but the outlook remains uncertain.

Much will depend on the trajectory of the Iran conflict, energy prices and consumer confidence — which has already dropped sharply in April, according to surveys from the University of Michigan.

If fuel costs remain elevated, economists warn that spending could slow, even if headline retail numbers appear strong.