All eyes are on a critical set of economic data due today. The Bureau of Labor Statistics will release the US Consumer Price Index (CPI) data for June, providing insight into how inflationary pressures have spread across food, shelter, and other sectors of the economy. The US CPI data for June is scheduled to be released on July 14, at 8:30 a.m. Eastern Time.
What Markets Are Expecting
Markets anticipate a decrease in inflation for June, following a significant drop in oil prices after ceasefire agreements between the US and Iran were announced.
The consensus reading is: headline CPI decreased by 0.1% month-on-month, with the annual rate dropping from 4.2% to approximately 3.9% — influenced by a 10% decline in gasoline prices in June. However, core CPI, excluding food and energy, is projected to remain steady at around 2.9% year-on-year — the figure the Federal Reserve monitors most closely.
A Reuters survey of economists predicts the Consumer Price Index increased by 3.8% in the 12 months through June.
Why the June Reading Could Be Misleading
Here is the crucial caveat that markets need to keep in mind: the June CPI data may paint a rosier picture than the reality on the ground.
If markets conclude that inflation is slowing down based on the June report, this could be misleading. Oil prices have once again reversed course and are rising fast. Brent crude rose above $84 per barrel on Tuesday, marking a weekly gain exceeding 10%.
The ceasefire that caused oil prices to fall ended on July 8. Since then, oil prices have surged following fresh US airstrikes and Iran’s claim of a closed Strait of Hormuz.
This means June’s reading will reflect a lower price level, while the upcoming July data, to be released in August, is likely to show significant changes.
The recent jump in oil prices follows President Trump’s reinstatement of a blockade on Iranian vessels in the Strait of Hormuz, with payment requirements for all other cargoes entering that waterway due to take effect at 4 p.m. Eastern Time today.
In a nutshell: the risks from rising inflation have not gone away. If oil prices remain elevated, there are direct implications for US Fed interest rate decisions, bond yields, equity markets, the dollar, and prices of precious metals like gold and silver.
Where Does the US Fed Stand?
The Fed’s task is getting harder — not easier. Unless there is an early resolution to the Strait of Hormuz situation, oil prices may remain elevated, putting further upward pressure on inflation. Minutes from the Fed’s June 16-17 meeting indicated rising concerns about inflation, leading to the decision to keep the benchmark interest rate steady at 3.50%-3.75%.
While markets are not expecting a rate cut anytime soon, CME’s FedWatch tool shows a 50% probability of a rate hike in 2026. US Fed policymakers are required to make judgments based on incoming data, and with the current data set providing little clarity, the road ahead for the central bank appears increasingly uncertain. A rate hike or a prolonged pause may be the option chosen by the US Fed.
US Markets on Tuesday
US market futures slipped lower on Tuesday as investors assessed increasing Middle East tensions following President Donald Trump’s announcement of plans to reestablish a blockade on Iranian vessels traversing the Strait of Hormuz. AI stocks are experiencing pressure amid recent trading, compounded by renewed US-Iran tensions.
“The evolution of the conflict between the United States and Iran, movements in oil prices, and earnings reports from major technology companies will be key factors in determining whether the recent pullback represents nothing more than profit-taking or the beginning of a more volatile period for U.S. equities,” says Antonio Di Giacomo, Senior Market Analyst at XS.com. Markets are expected to remain under strain and prepare for higher long-term interest rates, regardless of whether the June US CPI data meets expectations.
Disclaimer: The data and information provided in this article are for informational purposes only and should not be construed as investment advice. Market forecasts and analyst views expressed herein are subject to change without notice and may not materialise. Readers are advised to consult a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any financial losses arising from the use of this information.