Consumer prices, excluding food and energy costs, increased by a seasonally adjusted 0.1% last month, compared to estimates for a 0.2% increase and May's 0.1% advance.
The Labor Department said earlier Friday the CPI grew 1.6 percent from a year earlier in June, marking the smallest year-over-year gain since October 2016.
Retail sales and CPI inflation are two of the most important pieces of United States data we get each month and both are due to be released shortly before the open on Wall Street.
Emerging markets-focused asset manager Ashmore ASHM.L fell after reporting a 5 percent rise in its fourth-quarter assets, boosted by new client cash.
The dollar extended losses against a basket of currencies on the data while prices for U.S. government bonds rose.
USA two-year yields slid as well, down at 1.343 percent, from 1.355 percent before the data's release.
Their implied view fell to 47 percent shortly after the release of the latest CPI and retail sales data. It rose as high as $1.3088 after a closely watched survey of USA consumer sentiment came in worse than forecast at 1400 GMT and was also half a percent higher at 87.63 pence per euro.
But Dr Yellen added that monetary policy was not on a preset course, and that the Fed was "watching this very closely and stands ready to adjust our policy if it appears the inflation undershoot appears consistent".
Yellen, as she has in other statements recently, told lawmakers that she expects low inflation to be transitory. Interest rate markets are now tipping the first rate hike to come in June 2018 versus the central bank's forecast of September 2019.
MSCI's broadest index of Asia-Pacific shares outside Japan ticked up 0.3 per cent. Japan's yen-sensitive Nikkei slid 0.4 per cent on the yen's gains but MSCI's dollar-denominated Japan index gained 0.5 per cent.
Inflation continued to soften in June after hitting a five-year-high just five months ago, possibly undermining the belief of some Federal Reserve officials that the slowdown is just temporary.
The euro EUR= gained 0.64 percent to $1.468. Retail sales rose 2.8 per cent year-on-year in June.
FED WATCH: Yellen rehashed her key message in her comments to Congress on Thursday, speaking of challenge posed by the dual risks of inflation: prices rising too slowly and prices accelerating too quickly. After initially falling below 2.3%, the 10-year yield climbed back above that level, reflecting strong forces that are still pushing up on yields, analysts said.
Oil rose 1 percent on Friday, boosted by lower US stockpiles, a slight slowdown in USA crude production and signs of increased Chinese demand, but trading was volatile as global supply remained strong.
The most-active USA gold futures for August delivery futures settled up $10.20, or 0.84 percent, at $1,227.50 per ounce.
US West Texas Intermediate (WTI) crude futures rose 46 cents to settle at US$46.54 per barrel.