US core CPI data came in below expectations, triggering a real shift in market expectations as part of a series of cold inflation data releases in recent days.

June core CPI fell to 2.6% year-on-year, up from 2.8% in May, while market expectations were for a rise to 2.9%. Overall CPI also fell 0.4% month-on-month, its largest monthly drop since April 2020, bringing annual inflation down to 3.5%, below expectations of 3.8% and 4.2% in May.

This data didn't stand alone; the June Producer Price Index, released a day later, delivered a similar surprise, falling 0.3% month-on-month, its first decline since August 2025, with core PPI also falling to 4.7% year-on-year, significantly below the expected 5.2%. The fact that two separate inflation indicators came in consecutively and clearly cold creates a much stronger signal than a single data surprise, because the two confirm each other.

It's important to note that a large part of the decline was due to energy prices; the sharp drop in gasoline prices accounted for a large portion of the decline in commodity prices on both the CPI and PPI sides. This is an important distinction for those who want to test the true strength of core inflation, because a cooling driven by energy tells a structurally different story than a cooling driven by weakening core demand.

The market reaction was swift and clear: the probability of a Fed rate hike in July fell from forty percent to sixteen percent, and the probability of a September hike fell from seventy-four percent to sixty percent. The dollar index weakened, bond yields fell, both stock and crypto markets recovered, Bitcoin rose to the $64-65,000 range, and Ethereum climbed above $1,900.

But there is an important timing issue to consider here. These figures are from June, meaning they don't yet reflect the impact of the recent wave of attacks on Iran, the renewed US naval blockade, and the sharp rise in oil prices. WTI reached around $80 this week, while Brent approached $85. When this energy shock begins to be reflected in the July data, the sustainability of today's positive core inflation picture becomes a serious question mark.

For those following Fed policy and risk assets through Gate, the key point to watch is this: this softening in core inflation is real and a market-moving development, but as long as the pressure from Middle Eastern energy prices continues, the extent to which this picture might reverse when the July data is released remains the most critical variable determining the Fed's stance at its July 28-29 meeting.

#USCoreCPIMissesExpectations
#SummerCreationCamp