Bitcoin Drops After US CPI Report Shows Inflation Hotter Than Expected
US consumer prices in September eased from the previous month, the Labor Department reported Thursday, but the inflation rate was still faster than economists had predicted.
Bitcoin (BTC) fell nearly 3% in the minutes following the report to its lowest level since September 21. At press time, the largest cryptocurrency by market capitalization was changing hands at around $18,400. Crypto traders are watching monthly inflation numbers closely, as the Federal Reserve’s efforts to curb skyrocketing inflation have pushed down the prices of financial assets considered risky, from stocks to bitcoin.
The Consumer Price Index report – the most widely used gauge to track inflationary pressures in the US – rose 8.2% in September from the same month a year ago, slightly higher than the 8.1% predicted by economists. The index rose 0.4 percent from August.
The “core” CPI, which strips out volatile energy and food prices and is watched more closely by investors and policymakers because it is seen as a more stable indicator of underlying price pressures, rose 0.6%, the same pace as it rose in August, well. exceeds expectations. The core CPI rose 6.6% from a year ago to the highest level in four decades.
Inflation Whac-A-Mole
When some prices fall, others rise. While the price of gas, which was the main driver of high inflation in recent months, cooled further, prices of other goods offset price falls and kept overall inflation at a high level.
Health insurance, for example, rose by 28% year-on-year, which is the largest increase ever. Similarly, groceries were 13% more expensive than a year ago, and rents rose by 7.2%, the highest in four decades.
And although gas prices fell slightly in September, economists expect energy to pick up again in the coming months. The Organization of the Petroleum Exporting Countries announced it would cut production by 2 million barrels a day, which could push prices back up.
Investors should be aware of “continued divergence in direction between headline and core measures compared to prior periods,” said Michael Weisz, president of Yieldstreet. “Core categories, such as housing costs, tend to be ‘stickier’ in terms of price movements and can provide insight into future inflation expectations.”
Central bankers have raised interest rates five times this year so far, by a total of 300 basis points, or 3 percentage points, in a bid to get inflation down to 2%, but they have a long way to go. In a survey conducted by Bankrate, 43% of economists said they believe inflation has not peaked yet and will be more significant over the next 12 to 18 months.
According to the minutes of the September meeting of the rate-setting Federal Open Market Committee, which were released on Wednesday, central bankers indicated that they expect interest rates to remain high until prices fall sharply.
“They had raised their assessment of the path of the federal funds rate that would likely be needed to achieve the committee’s objective,” according to the document, with inflation “so far showing little sign of abating.”
Bitcoin, which has fallen dramatically this year, could remain under pressure as traders worry about the prospect of further steep interest rate hikes by the Federal Reserve on 1-2. November, when the FOMC meets next.
UPDATE (13 October 2022 13:53 UTC): Adds more information on the main drivers of high inflation in September.
