Bitcoin rallied after July’s CPI data showed that inflation had started to ease after several months of record rates.
Similar to earlier cases, the price of bitcoin climbed close to $24,000.
CPI Report Boost Bitcoin Price
According to the Consumer Price Index (CPI) report that the US Bureau of Labor and Statistics released on Wednesday, consumer costs remained unchanged, putting inflation at 8.5%.
Before that, analysts had predicted that the index, which analyzes price changes across a wide range of products and services, would increase by 0.2% to reveal inflation to be 8.7% a year.
After the US Bureau of Labor Statistics released its inflation data for July, the value of the Dow Jones Industrial Average, Nasdaq, S&P 500 and NYSE indexes all rose sharply. Additionally, the value of precious metals and cryptocurrencies rose on Wednesday. The value of bitcoin increased by almost 4%, that of gold by 0.35%, and that of silver by 1.43% in relation to the dollar.
BTC/USD trades close to $24k. Source: TradingView
Inflation as measured by headline CPI increased 0.0 percent month-on-month in July, well below its elevated June monthly rate of 1.3 percent. Monthly core inflation in July fell to 0.3 percent. 1/ pic.twitter.com/6bVTZq7m1W
— Council of Economic Advisers (@WhiteHouseCEA) August 10, 2022
According to the Consumer Price Index (CPI) report for July 2022, the Consumer Price Index for All Urban Consumers (CPI-U) increased by 1.3 percent in June but remained stable in July. Before seasonal adjustment, the all-items index rose 8.5 percent over the previous 12 months. The inflation report adds:
“The gasoline index fell 7.7 percent in July and offset increases in the food and shelter prices, resulting in the index of all items being unchanged during the month.”
Focus Turns to FOMC Meeting in September
Analysts expect core inflation to rise from 5.9% to 6.1%, pushing the Fed to raise interest rates in September. The CPI data, however, indicates that recent tariffs are having a chilling effect on the economy.
However, Citigroup economists predicted another increase of 75 basis points, fueled by strong jobs and faster-than-expected wage growth. But if core inflation comes in higher than expected, there is also a possibility for a 100 basis point increase.
Federal Funds Effective Rate (Source: FRED)
The current CPI rate is 9%, and investor Stanley Druckenmiller said that “Inflation has never fallen above 5% without Fed funds increasing above CPI.”
The Fed won’t need to raise rates as much as they have so far this year if inflation has peaked.
In response to rising interest rates that slow growth, institutional investors have moved away from more speculative assets like technology stocks and cryptocurrencies and toward investments that are more comparatively stable, such as corporate bonds and US Treasuries.
Featured image from Getty Image, charts from FRED and TradingView.com