Unexpected Decline in Core CPI Sends Bitcoin Price Higher

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What to know:

  • Headline inflation rose faster than expected last month, but the year-over-year core rate declined, cheering investors.
  • Policymakers had previously been frustrated at the core rate’s stickiness.
  • The price of bitcoin jumped to $98,500 following the data.

Although December saw headline inflation rising more quickly than anticipated, investors have adopted a buying stance due to a surprising drop in the annual core rate’s increase.

In December, the Consumer Price Index (CPI) rose by 0.4%, which was slightly more than what experts had predicted and a slight increase from the 0.3% rise in November. On an annual comparison, the CPI grew by 2.9%, matching analysts’ expectations but higher than the 2.7% recorded in the previous month.

The increase in the core Consumer Price Index, not including food and energy costs, was 0.2% in December instead of the predicted 0.2%, and lower than the previous month’s 0.3%. On an annual basis, however, the core CPI dropped to 3.2% compared to forecasts for 3.3% and the November rate of 3.3%.

The rise in prices (excluding food and energy) for everyday items was slightly less than expected in December (0.2%) compared to last month (0.3%), but on an annual basis, it was still higher than forecasted (3.2%) and the previous month’s rate (3.3%).

To policymakers, the persistent rate of inflation above 3%, despite a rapid decrease in overall inflation, carries significant weight and has caused some degree of exasperation.

In just a few minutes after the report was released, the value of Bitcoin (BTC) increased by approximately $1,500, reaching $98,500. This represented a 2% increase compared to the previous 24-hour period, as indicated by data from CoinDesk.

As a researcher, I found that in conventional market scenarios, U.S. stock index futures experienced an approximate 0.5% increase following the release of the data, while both bond yields and the U.S. dollar witnessed significant drops.

Throughout January, the cryptocurrency markets have been moving within a limited range, influenced by macroeconomic indicators and predictions about monetary policy, while a robust economy and worries of persistent inflation are also factors at play. Following Jerome Powell’s hawkish remarks as the Federal Reserve Chair in December, Bitcoin has mostly remained below $100,000. This, coupled with an ongoing series of better-than-anticipated economic and inflation data, caused market participants to almost entirely abandon their hopes for interest rate reductions this year.

In the past few days, the latest Producer Price Index (PPI) for December was released, revealing lower inflation figures than anticipated. This has contributed to Bitcoin’s recovery to around $97,000 after a sudden drop below $90,000 earlier this week.

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2025-01-15 16:48