June CPI Shocks Lower at 3.5%, Dollar Slides on Soft Inflation Data
US inflation fell sharply below forecasts in June, sending the dollar lower and reviving rate-cut hopes as core prices hit a four-year low.
US consumer prices rose just 3.5% year-over-year in June, dramatically undercutting Wall Street's 3.8% forecast and delivering the most encouraging inflation reading in months, according to data released Monday. Monthly headline CPI dropped 0.4%, compared with expectations for a 0.1% decline, while core inflation eased to 2.6% annually — its softest pace since early 2021 — with the monthly core reading coming in flat, the weakest since January 2021.
The report's breadth amplified its impact. Energy prices led the way down as gasoline tumbled, but the relief spread across the economy: shelter posted its smallest monthly gain since January 2021, and core services excluding shelter recorded their weakest print since May 2020. Motor vehicle insurance, apparel, used cars, medical care, and lodging all contributed to the downside surprise.
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Markets moved swiftly. The US dollar fell sharply in the aftermath, and traders recalibrated rate-cut expectations. Fed Chair Kevin Warsh, speaking separately, reinforced a hawkish baseline, saying the Fed has "no tolerance for persistent elevated inflation" and that "inflation is a choice" — signaling policymakers are not ready to declare victory despite the benign data. Chicago Fed President Austan Goolsbee called the June CPI print "surprisingly benign."
RBC responded to the shifting landscape by raising its Canadian and US growth forecasts while simultaneously projecting the Federal Reserve and the Bank of Canada will remain on hold through 2026, suggesting the bank views the soft print as encouraging but not decisive. Fitch separately affirmed Canada's credit rating at AA+ with a stable outlook, adding a measure of fiscal calm to an otherwise volatile session.
Crude oil settled at $79.34, up $1.20 on the day, though prices whipsawed intraday after President Donald Trump backed away from a proposed 20% reimbursement fee on ships transiting the Strait of Hormuz. Trump also signaled plans to pursue energy deals with Iraq. Continue reading at Forexlive.
