U.S. retail sales surged in March as consumers purchased cars, clothes and gardening supplies.

Retail sales rose by a much stronger-than-expected 1.8% last month, the U.S. Commerce Department said this morning.Wall Street economists were expecting a gain of about 0.7%.

Retail sales were boosted by a 2.1% gain in auto sales. Without auto sales, overall retail sales would have risen by 1.7%.

The March increase follows a revised 1.0% gain in February, and is the largest increase since March of last year.

While the strong retail sales result brightens the economic picture, it also sparks fears of interest rate hikes.

“The strength in the retail sales numbers will further undercut the bond market, while ramping up concerns about rising inflation pressures,” says BMO Nesbitt Burns.

CIBC World Markets cautions that the difference seen consistently between the initial and final estimates suggests today’s numbers could be subject to substantial future revision. “However, it’s clear that consumers are flocking to the shopping mall with the refund checks they have received, or are counting on getting in the next month or so.”

“Today’s across-the-board strength in retail sales poses upside risks to our 3.7% call for Q1 consumer spending,” CIBC allows. “Spending could now come in closer to the 4% we had expected a few months ago, prior to the deceptively weak initial retail sales reports. Bush’s engineered spending spree should extend this positive momentum into Q2, but once that tax-refund crutch is gone, it will take a lot more than one month of healthy payrolls growth for consumers to keep this heady pace going in the second half of the year.”

“The healthy pace of spending seen over the last few months is consistent with a favourable job market situation. We continue to believe that the March boom in employment was not a one-hit wonder, but rather evidence of a more profound improvement in labour market conditions,” says TD Bank.

In our view, this further strengthens the case for a Fed to begin raising rates this August — and the spike in bond yields this morning suggests that the Treasury market is rapidly coming around to this view,” concludes TD.