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.

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?

Uncertainty over tariffs had already led the central bank to adopt a wait-and-see approach to interest-rate decisions.

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.

Selling pressure on 10-year US Treasuries from the latest round of Israel-Iran conflict is likely to have a lasting effect if past episodes of clashes between the two nations are any guide.

Israel's 12-month inflation rate decreased to 3.1 percent in May, down from 3.6 percent in April, according to data issued Sunday by the Central Bureau of Statistics.

At least eight people died overnight following Iranian missile strikes on Israel. Israel's defense minister accused Iran of targeting civilians and Iranian officials have also accused Israel of striking civilians.

Keep an eye out for signs of labor-market weakness, as well as the risk that rising oil prices could put more upward pressure on inflation.