The U.S. economy expanded by 2 percent in the first quarter of 2026 despite a sharp rise in fuel prices driven by ongoing conflict in the Middle East. Data released Thursday by the Commerce Department showed that consumer spending, private investment, and government expenditures remained robust, providing a buffer against the inflationary pressures stemming from surging energy costs.

Crude oil prices for July and August futures have surpassed $100 per barrel amid tensions triggered by the war with Iran, leading to increased costs that have started to ripple through the economy. Though gross domestic product (GDP) figures are adjusted for inflation, the rise in fuel prices slightly tempered overall growth during the period.

A notable indicator combining consumer expenditure and gross private investment rose 2.5 percent in the first quarter, accelerating from the 1.8 percent increase reported at the close of last year. Capital expenditures associated with artificial intelligence infrastructure contributed significantly to this growth, highlighting a trend toward technology-driven business investment.

Economists offered mixed perspectives on the outlook. Jason Draho, head of asset allocation for the Americas at UBS, described the GDP report as “a solid number,” underscoring the resilience of consumer spending. However, he cautioned that sustained high energy prices over the next six months could offset these gains. Diane Swonk, chief economist at KPMG, likened the current situation to post-pandemic disruptions, where elevated prices undercut wage and growth momentum despite underlying economic strength.

Inflation remains a pressing concern. Separate government data showed that the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, increased by 0.7 percent in March and was up 3.5 percent year-over-year—the fastest annual increase since 2023. Core PCE, which excludes food and energy prices, rose by 0.3 percent in March and 3.2 percent over the past year, well above the Fed’s target of 2 percent. The central bank maintained interest rates at the recent Federal Open Market Committee meeting to moderate inflationary pressures.

Financial markets have so far held steady, with stock indexes approaching record highs. Investor attention remains fixed on strong corporate earnings and profit margins rather than geopolitical risks. Nonetheless, concerns persist that higher energy costs could eventually weigh on consumer behavior and business activity. The University of Michigan’s consumer sentiment index tumbled to a historic low in April, even falling below levels seen during recessions.

Some businesses continue to report strong performance despite broader anxieties. Aaron Seyedian, founder of Well-Paid Maids, a residential cleaning service operating across multiple cities, attributes recent revenue growth in part to serving a wealthier client base less affected by global trade tensions and conflict. His company plans to expand into Seattle and Boston this month.

Economic researchers at Bank of America highlighted that while tax stimulus measures have increased consumers’ disposable income, rising gasoline expenses have already absorbed a significant portion of these gains. Analysts warn that unless the Middle East conflict eases in the coming months, prolonged energy price volatility could have far-reaching consequences for both the U.S. and global economies.

Overall, the first quarter data reflect a U.S. economy showing resilience amid mounting headwinds from inflation and geopolitical uncertainty, though the sustainability of growth depends on how these pressures evolve.