The Labor Department’s most recent Consumer Price Index (CPI) report showed headline inflation fell for the first time since November 2020. The price of Bitcoin did not react kindly to the news, and immediately fell to $29,000 before recovering quickly.
US Inflation Analysis
by department Character The CPI for April, released on Wednesday, was up 0.3% on a seasonally adjusted basis. That compares to 1.2% in March, when the US surged gasoline prices much faster than before as a result of the US trade war with Russia.
In contrast, the gasoline index fell 6.1% this month, helping to offset the index gains for electricity and natural gas. Rather, higher prices for housing, food, new cars and airfare contributed the most to inflation, with the Home Foods index rising 1%.
However, the index for all items excluding food and energy increased 0.6% in April from 0.3% in March. Known as “core inflation,” the measure beat economists’ expectations of 0.4%.
Nonetheless, the annual CPI figure for April was ultimately at 8.3%, down from the 8.5% figure for March. The statistic puts an end to a months-long streak of record headline inflation numbers, with March’s figures holding their highest in more than 40 years.
However, the downtrend could be more relevant to April last year than it is now. Headline inflation rose to 4.2% from 2.6% at the time, meaning this month’s report is using a higher 12-month price.
Bitcoin’s Inflation Links
Bitcoin’s price has been erratic in response to the Bureau’s updates. After launch, the value of the cryptocurrency plummeted from about $31,700 to $29,000 in 20 minutes. It then rebounded back to $31,600 by 13:50 UST, and was pegged at $31,300 at the time of writing.
Native cryptocurrencies are known to have a mixed relationship with inflation. It is often common for prices to react to monthly inflation updates in unpredictable ways.
On the one hand, Bitcoin is thought of as “digital gold,” an inflation hedge due to a limited supply of 21 million coins. Conversely, the price of the coin is also closely linked to the NASDAQ, which traders see as a risky tech stock.
The latter allows interest rate news to play an important role in crypto markets as well. Bitcoin gained value last week after Fed Chairman Jerome Powell ruled out a 75bp rate hike, but fell as the market set a price that promised more increases in the future.
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