US June CPI came in at 3.5% vs 3.8% expected, driven by a steep drop in gasoline. Markets rallied, but oil tensions and rising yields could limit the relief.
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US inflation cooled more than expected in June. The consumer price index rose 3.5% from a year earlier, below the 3.8% economists had forecast, the Labor Department said. Month on month, prices dropped 0.4%, the steepest decline since May 2020. The gasoline pump was the main driver: gasoline prices fell sharply, accounting for much of the headline miss.
Oil prices have climbed about 14% since the start of July after a fresh escalation in the US-Iran conflict. Analysts said higher crude costs eventually flow through to the pump, meaning gasoline deflation might not persist. Refining margins are tight, and any further oil rally would push retail fuel prices higher in coming months.
Core CPI, which strips out food and energy, also moderated in June. The data showed little sign of a boost from the World Cup or from tariff pass-through, the Labor Department figures indicated. That gave bond bulls some comfort, at least for now.
US stocks bounced back after the release. The S&P 500 rose and futures added 0.2% in overnight trading, with Nasdaq futures up 0.7%. Technology shares led the rebound. Treasury yields initially fell but have since climbed back. The 10-year yield traded near 4.60% on Friday, up from the 4.525% low struck right after the CPI print.
The dollar slipped against major peers. EUR/USD held around 1.1420–40, within the range of the past two weeks. The dollar-yen pair stayed above 162.00, still within reach of its 38-year high.
Swissquote strategists warned that inflation could firm again in July as energy costs rebound. For markets, the June CPI offered a breather. The question is how long it lasts if oil keeps climbing and yields creep higher.
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