US inflation eased to an annual 3.5pc in June after an interim peace agreement with Iran pushed down energy prices and falling core inflation showed little spillover from the war or tariffs.
The consumer price index (CPI) slowed from 4.2pc in May, which was the highest in nearly three years, the Bureau of Labor Statistics (BLS) reported Tuesday. Analysts surveyed by Trading Economics had forecast CPI at 3.8pc for June.
So called core inflation, which strips out volatile food and energy, slowed to 2.6pc in June from 2.9pc in May.
"The benign reading of the core CPI puts inflation fears on hold and reinforces our baseline forecast for the Federal Reserve to sit tight over the rest of the year," Oxford Economics said in a note. "However, we're still not out of the woods."
CME's FedWatch tool, after the inflation report, still gave 81pc probabilities the Fed will hike its target rate by at least a quarter point by the end of the year. That is down from 89pc odds the prior day.
CPI fell by a monthly 0.4pc in June after rising by 0.5pc in May, 0.6pc in April and 0.9pc in March from the prior month, BLS said. It rose by 0.3pc on the month in February.
Energy prices
The energy index eased to an annual 15.7pc in June from 23.5pc in May. Gasoline eased to 26.7pc in June from 40.5pc in May.
Energy prices fell after the US and Iran reached a ceasefire agreement in mid-June that allowed a partial reopening of the strait of Hormuz while broader negotiations continued. Fighting has resumed in recent days and crude prices are surging again.
The fuel oil index came in at 42.9pc in June from 58.9pc in May, BLS said.
Electricity services eased to 4pc in June from 5.9 in May, while piped gas remained unchanged at 3pc in June.
The food index slowed to an annual 3pc in June from 3.1pc in May.
Shelter was at 3.3pc in June, slowing from 3.4pc in May.
Services less energy services rose by 3.2pc in June following a 3.4pc gain in May.
Transportation services eased to 3.4pc in June from 4.1pc in May.
