US Consumer Prices ease more than expected in June but relief is likely to short-lived

US inflation increased by 3.5% y/y in June after surging 4.2% previous month (the biggest increase in over three years) and fell below 3.8% forecast, while monthly CPI fell 0.4% last month after 0.5% rise in May and beat expectations for 0.1% drop.

Core inflation, which excludes the volatile food and energy components, increased 2.6% y/y in June, down from 2.9% in May and ticked below 2.8% consensus, while monthly core CPI was flat in June, after gaining 0.2% previous month.

Although US consumer prices eased well below expectations, relief that June figures provide is likely to be limited and probably will not have significant impact on market expectations for Fed monetary policy in 2026, as inflation remains well above the central bank’s 2% target and fresh escalation in the Middle East after a fragile and short-lived period of ceasefire, adds to growing uncertainty.

Lower oil prices due to the ceasefire between the USA and Iran that partially normalized supplies through key route through Hormuz strait, was mainly behind the June’s drop in the US consumer prices.

However, renewed tensions in the region which threaten to escalate further and repeated closure of Hormuz, suggest that June’s easing in inflationary pressure is unlikely to be sustained, as oil prices already jumped after renewed hostilities.