Israel's annual inflation rate eased more than expected to 3.1% in May, official data showed on Sunday, although it is still slightly above target and the escalation of the country's conflict with Iran poses additional risks to the outlook.

Israel’s annual inflation rate dropped to 3.1% in May, down from 3.6% the previous month, according to figures released Sunday by the Central Bureau of Statistics. This is the lowest year-on-year rate recorded since June 2024, when inflation stood at 2.9%.

US Treasuries fell as an earlier surge in oil prices fanned concern about inflation, with tensions between Israel and Iran escalating over the weekend. Most Read from BloombergShuttered NY College Has Alumni Fighting Over Its FutureDo World’s Fairs Still Matter?

A prolonged Israel-Iran conflict could push oil prices sharply higher, potentially prompting the Federal Reserve to either hasten rate cuts due to an economic slowdown or delay them to combat rising inflation.

Treasury yield jumped 6.9 basis points on Friday to $4.426, reversing a dip in the immediate aftermath of the attacks.

Investors are closely watching the latest updates in the hostilities between Israel and Iran to gauge how the situation might affect oil prices, as a rise in crude could put more pressure on inflation.

Israel conflict. However, state-run companies such as HPCL, BPCL and IOC are expected to absorb the hike, shielding consumers from higher petrol and diesel prices. Consequently, inflation may not pick up either.

The oil price surged more than 7 per cent on Friday after news of the attack hit commodity traders' screens, and any thought of the price staying below $US60 a barrel this year now seems dead.