US CPI seen cooling to 3.8% as oil slump masks AI risks

US consumer prices likely fell for the first time in more than two years in June as gasoline costs tumbled, though the reprieve may do little to deter a Federal Reserve wary of AI-driven inflation pressures.

"June CPI likely showed inflation remained contained, with core up 0.20% month over month," TD Securities analysts said in a preview. "Soft goods prices and further shelter normalization should keep underlying inflation steady, though this year's oil shock may continue to lift airfares."

The headline CPI is forecast to decline 0.1% month over month, according to the consensus estimate, after rising 0.5% in May. On an annual basis, the index likely retreated to 3.8% from 4.2% — the highest since May 2023. Core CPI, which strips out volatile food and energy costs, is expected to hold at 0.2% month over month and 2.9% year over year, unchanged from May. TD Securities expects a 0.22% monthly decline in headline CPI, led by a 10% drop in gasoline prices.

The data arrives at a critical juncture for the Fed. While a monthly decline would mark progress on inflation, policymakers have signaled caution. Markets price about a 30% probability of a quarter-point rate hike in July and a 77% chance of at least one increase by year-end, according to the CME FedWatch Tool. The fed funds rate has sat at 5.25% to 5.50% since July 2023.

The drop in gasoline prices — down roughly 10% in June — follows a more than 20% decline in crude oil after the US and Iran reached a ceasefire on June 17, bringing oil back to pre-war levels. But the relief may prove temporary. Since the start of July, oil prices have edged higher again as the two sides exchanged strikes, threatening the fragile truce and reviving concerns about inflation's trajectory.

Beyond energy, the Fed faces a less familiar threat. A recent Fed study found that the "Computer Software and Accessories" category of the Personal Consumption Expenditures Price Index — which had been falling at an average annualized rate of 5.3% over the past 25 years — surged at a 73% annualized pace from November 2025 through March 2026. The finding highlights the potential inflationary effect of the artificial intelligence boom, as massive capital flows into AI infrastructure, rising industrial electricity costs and price premiums on tech hardware and software subscriptions feed into core services inflation.

The cross-asset reaction to Tuesday's release could be sharp. A hotter-than-expected reading would strengthen the case for a July rate hike, boosting the dollar and pressuring risk assets. The euro has already touched a 12-month low below $1.1330 in late June and now trades near $1.1400. A cooler print, by contrast, could fuel expectations of a prolonged Fed pause, lifting equities and sending the dollar lower.

Bitcoin, which has shown extreme sensitivity to CPI releases this year, faces particular risk. The largest cryptocurrency has swung double digits after each of the past six CPI prints, including a 27.6% crash in May and a 10.85% rally in June. It currently trades near $62,000, with traders defending the $61,000 to $62,000 support zone.

The last time headline CPI posted a monthly decline was May 2020, when it fell 0.1% during the pandemic lockdowns. That comparison shows how unusual a negative print would be — and how quickly the narrative could shift if oil prices continue their July rebound.

This article is for informational purposes only and does not constitute investment advice.