Written by Lucia Mutikani
WASHINGTON, April 1 (Reuters) – U.S. retail prices rose by the most in seven months in February as car prices rose and temperatures soared, but rising gasoline prices due to war in the Middle East were expected to dampen spending in coming months.
A late report from the Commerce Department on Wednesday suggested that the economy was in solid shape before the US-Israel war with Iran. The conflict, which began in late February, has sent global oil prices up more than 50%, and the country’s retail price of gasoline this week rose to $4 a gallon for the first time in more than three years.
A prolonged war and further increases in fuel prices could offset some of the expected increase in consumer spending and the economy as a whole from the tax cuts, economists have warned. They expected the conflict to weigh on growth in the second quarter.
“I expect that consumer spending will be lower in the first half of the year than it would have been without the increase in gasoline prices, but I predict that the price of energy will fall significantly in a few months, which will allow real money to return in the second half of the year,” said Stephen Stanley, chief economist for the US at Santander US Capital Markets.
Retail prices rose 0.6%, the biggest increase since last July, after falling as much as 0.1% in January, the Commerce Department’s Census Bureau said. Economists polled by Reuters had retail sales, which are mostly goods and not adjusted for inflation, rising 0.5% after an initial decline of 0.2% in January.
The Census Bureau is holding back data releases after delays caused by last year’s government shutdown.
One of the increases in retail sales reflected higher gasoline prices, which had begun to rise in anticipation of the Middle East war. In addition to expensive gasoline, consumers are also facing higher prices at the store from President Donald Trump’s tariffs.
The broad increase in sales was driven by tax returns. The average refund was $350 through March 20 compared to the same period in 2025, Internal Revenue Service data showed.
“Tax refunds keep the economy in the first quarter,” said Christopher Rupkey, chief economist at FWDBONDS. “Cheap consumer goods at least until the tax refund ends.”
Receipts at auto dealers rose 1.2% amid promotions and discounts, after falling 0.7% in January.
Sales at electronics and appliance stores rose 0.5%, while those at building materials, garden equipment and furniture retailers rose 0.4%. Sales receipts at clothing and apparel stores rose 2.0%.
Non-retail sales, which include online stores, increased by 0.7%. Sales at service stations rose 0.9%. Sales of sporting goods, hobbies, musical instruments and bookstores increased by 1.3%.
But furniture store sales fell 1.0% as did food and beverage store receipts.
Sales at food and beverage services, the report’s only service component and a measure of discretionary spending, advanced 0.4%. Economists consider consumption to be the main indicator of household finances, which are now vulnerable to the month-long crisis, which wiped out $3.2 trillion from the stock market in March. High-income households lead consumer spending, which is supported by strong economic conditions.
Stocks on Wall Street were trading higher. The S&P 500 index in March posted its biggest month-over-year decline. The dollar retreated against a basket of currencies. US Treasury yields rose.
A LONG TIME TO LIVE IN FAKES
Retail sales excluding autos, gasoline, building materials and food services increased 0.5% in February after rising 0.2% in January. These so-called primary items of retail sales are closely related to the consumer consumption share of gross domestic product. Consumer spending fell in the fourth quarter, helping to limit GDP growth to an annual rate of 0.7%. The economy grew at a rate of 4.4% in the third quarter.
The Atlanta Fed estimates that GDP growth increased by 1.9% in the first quarter. Those expectations were supported by a survey by the Institute for Supply Management, which showed that its manufacturing PMI reached 52.7 in March, the highest number since August 2022, up from 52.4 in February.
It was the third consecutive month that the PMI was above the 50 level, indicating expansion. Part of the increase in the index may be due to lengthening supplier supply times, which are often associated with a strong economy and increased consumer demand. However, in this instance, the slow supply of exporters may reflect supply chains that have been disrupted due to shipping restrictions through the Strait of Hormuz and tariffs.
Apart from energy products, exports of fertilizers and aluminum have also been affected.
Chair of the ISM Manufacturing Business Survey Committee Susan Spence noted that “64% of the overall opinion was negative,” adding that “about 20% cited tariffs and about 40% the war in the Middle East.”
Although the US Supreme Court struck down Trump’s import duties, he responded by imposing a global tariff.
The ISM supplier survey rose to 58.9 from 55.1 in February. A reading above 50 indicates slow delivery. That increases inflation at the factory gate. The prices paid survey rose to 78.3, the highest level since June 2022, from 70.5 in February. The rise is reflected in the rise in prices of producer goods.
Those higher prices will feed into consumer inflation. The Cleveland Federal Reserve predicts that the Consumer Price Index rose 0.84% in March, which translates to an annual increase of 3.25%. CPI rose 0.3% in February and advanced 2.4% year-on-year. The Bureau of Labor Statistics is scheduled to release the March CPI report on April 10.
Some economists believe the Federal Reserve will not cut interest rates this year. The US central bank left the overnight interest rate in the 3.50%-3.75% range last month.
In revised estimates released alongside the decision, policymakers expected higher inflation and only one reduction in borrowing costs in 2026.
“The strength of consumer demand and commodity trading will also be tested in the second quarter as prices rise,” said Scott Anderson, chief US economist at BMO Capital Markets. “Producers are entering the second phase because of a much weaker base.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
