WASHINGTON, May 14 (Reuters) - U.S. retail sales increased solidly for a third straight month in April, though part of the rise in receipts was due to a sharp rise in inflation since the start of the U.S.-backed war with Iran.

Rising price pressures were underscored by other data on Thursday showing imported inflation last month rose at its fastest pace in four years. Larger tax refunds this year as well as strong stock market gains are providing households a cushion against rising inflation.

But price rises are outpacing wage gains, the tax filing season is over and the saving rate is near a 3-1/2-year low, leaving economists to anticipate softer spending late this quarter. The continued strength in retail sales highlighted what economists call a K-shaped economy, where upper-income households are doing well while lower-income consumers are struggling.

The reports joined recent inflation and labor market data in reinforcing financial market expectations that the Federal Reserve would probably leave its benchmark overnight interest rate in the 3.50%-3.75% range into next year.

"The powerful equity market rally is supporting spending on the upper leg of the K-shaped expansion, more than offsetting any pullback from those on the lower leg who are struggling with higher fuel, transportation and food costs," said Sal Guatieri, a senior economist at BMO Capital Markets.

Retail sales rose 0.5% last month after a downwardly revised 1.6% jump in March, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would gain 0.5% after a previously reported 1.7% increase in March.

Retail sales increased 4.9% on a year-over-year basis in April. Economists estimated that sales adjusted for inflation dipped 0.1% last month and were up 1.1% from a year ago.

The U.S.-Israeli conflict with Iran has disrupted shipping in the Strait of Hormuz, driving up prices of energy and other commodities, including fertilizer and aluminum.

Last month's advance in retail sales was led by a 1.4% increase in receipts at electronics and appliance stores. Sales at nonstore retailers, which include online retailers, rose 1.1%. Receipts at gasoline stations increased 2.8% after surging 13.7% in March. Gasoline prices rose 12.3% in April, data from the U.S. Energy Information Administration showed.

Consumers also increased their discretionary spending, with sales at sporting goods, hobby, musical instrument and book stores shooting up 1.4%. Receipts at food services and drinking places, the only services component in the ​report, rose 0.6%. This category is considered a key measure of household finances.

Stocks on Wall Street were trading higher, with the S&P 500 and the Nasdaq Composite indexes touching fresh intraday record highs. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

NO DEMAND DESTRUCTION YET

Though the pain at the pump is yet to meaningfully pull spending away from other areas, households are quickly running down the proceeds from their tax refunds relative to other years, economists said. The average tax refund was up $323 through April 25 compared to the same period in 2025, Internal Revenue Service data showed.

Economists at PNC Financial said that an analysis of internal data showed the rapid drawdown was occurring "particularly among lower-income households," adding that they were seeing "less of those refunds being used towards paying down credit card and other debt." Households typically use the tax windfall to boost savings. The saving rate dropped to 3.6% in March, the lowest since October 2022, from 3.9% in February.

Lower-income consumers disproportionately spend more on gasoline relative to higher-income households.

While layoffs remain low and the labor market is generating steady wage gains, high inflation is eroding purchasing power. First-time applications for state unemployment benefits rose 12,000 to a still-low seasonally adjusted 211,000 for the week ended May 9, the Labor Department said in a separate report.

Inflation outpaced wage growth in April for the first time in three years.

"More consumers are turning to savings and credit to sustain spending. These trends are becoming increasingly difficult to maintain, particularly for lower-income households," said Lydia Boussour, a senior economist at EY-Parthenon.

Sales at clothing and clothing accessories stores fell 1.5%, the retail sales report showed. Receipts at furniture and home furnishings retailers dropped 2.0%, while those at auto dealerships fell 0.4%.

Retail sales excluding automobiles, gasoline, building materials and food services rose 0.5% in April after an upwardly revised 0.8% increase in March. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product, and were previously reported to have advanced 0.7% in March.

Economists estimated that core retail sales rose only 0.1% last month after adjusting for inflation.

Consumer spending, which accounts for more than two-thirds of the economy, increased at a 1.6% annualized rate in the first quarter, decelerating from the October-December quarter's 1.9% growth pace. It has cooled from the 3.5% growth rate notched in the third quarter of 2025.

A separate report from the Labor Department's Bureau of Labor Statistics showed import prices increased 1.9% last month, the largest gain since March 2022, after rising 0.9% in March.

In the 12 months through April, import prices vaulted 4.2%. That reading was the largest year-on-year rise since October 2022 and followed a 2.3% increase in March.

Prices of imported fuel jumped 16.3%, the largest advance since March 2022, after rising 10.0% in March. Prices of imported food increased 0.9%. Excluding food and energy, import prices shot up 0.7% after gaining 0.2% in March. The so-called core import prices rose 3.3% in the 12 months through April.

"From the Fed's perspective, a still-solid labor market, resilient consumer spending but high and seemingly broadening inflation risks firmly put the weight of risks back onto the inflation side of its dual mandate, which once again means rates are likely to stay higher for longer," said Richard de Chazal, macro analyst at William Blair.