Inflation Data Released: Bitcoin Sees Sizable Gains Amidst Market Volatility
Headline Inflation Comes in Faster Than Expected
According to the latest Consumer Price Index (CPI) report, headline inflation rose 0.4% in December, slightly higher than analyst consensus and the previous month’s 0.3%. On a year-over-year basis, CPI was up 2.9%, compared to analyst forecasts for 2.9% and the previous month’s reading at 2.7%.
Core CPI Shows Unexpected Decline
Core CPI, which excludes food and energy costs, rose 0.2% in December, versus expectations for 0.2% and the previous month’s 0.3% figure. Core CPI year-over-year, however, dipped to 3.2% against forecasts for 3.3% and the November rate of 3.3%.
Policymakers Express Frustration Over Sticky Inflation
The core pace of inflation is of considerable import to policymakers, who have expressed at least a modest bit of frustration over its stickiness above 3% as headline inflation fell at a far quicker pace.
Bitcoin Sees Sizable Gains
The price of bitcoin (BTC) rose about $1,500 in the minutes following the report to $98,500, up 2% over the past 24 hours, CoinDesk data shows.
Traditional Markets React Positively
In traditional markets, U.S. stock index futures added about 0.5% after the data, while bond yields and the dollar both sharply declined.
Crypto Markets React to Macro Data and Monetary Policy Expectations
Crypto markets have traded rangebound through January at the whims of macroeconomic data and monetary policy expectations amidst a strong economy and concerns of sticky inflation. Bitcoin consolidated mostly below $100,000 since Federal Reserve Chair Jerome Powell’s hawkish comments in December. That, along with a string of stronger-than-forecast economic and inflation data, led market participants to nearly erase all expectations for rate cuts this year.
Producer Price Index Shows Cooler Inflation Readings
Most recently, Tuesday’s Producer Price Index (PPI) for December showed cooler than expected inflation readings, supporting BTC’s rebound to $97,000 following the abrupt sell-off below $90,000 earlier in the week.
Conclusion
In conclusion, the latest CPI report has sparked a mixed reaction in the markets, with headline inflation coming in faster than expected but core CPI showing an unexpected decline. The reaction in traditional markets has been positive, with stock index futures adding 0.5% and bond yields and the dollar declining. Crypto markets have also reacted positively, with bitcoin seeing a sizable gain. As the market continues to digest the data and adjust to changing expectations, investors will be closely watching for any further developments that may impact the trajectory of the economy and the markets.
FAQs
Q: What is the Consumer Price Index (CPI)?
A: The CPI is a measure of the average change in prices of a basket of goods and services consumed by households. It is widely used as an indicator of inflation.
Q: What is core CPI?
A: Core CPI is a measure of inflation that excludes food and energy costs. It is often used to get a better sense of underlying inflation trends.
Q: Why is core CPI important to policymakers?
A: Core CPI is important to policymakers because it helps them gauge the underlying pace of inflation and make informed decisions about monetary policy.
Q: How did traditional markets react to the CPI report?
A: Traditional markets reacted positively to the CPI report, with stock index futures adding 0.5% and bond yields and the dollar declining.
Q: How did crypto markets react to the CPI report?
A: Crypto markets reacted positively to the CPI report, with bitcoin seeing a sizable gain of about $1,500 in the minutes following the report.
Q: What is the Producer Price Index (PPI)?
A: The PPI is a measure of the average change in prices of a basket of goods and services produced by manufacturers and other producers. It is often used as an indicator of inflation in the production sector.
