Costs for consumers held flat according to the Consumer Price Index report (CPI) released by the U.S. Bureau of Labor and Statistics on Wednesday, indicating inflation is at 8.5%.
Analysts predicted previously that the index, which tracks price movements across a broad range of goods and services, would rise 0.2% to show inflation is 8.7% on a year-over-year basis.
Instead, inflation remained unchanged last month, a sign the Federal Reserve’s interest rate hikes are taking the steam out of rising prices.
Previously, inflation showed a 9.1% increase in prices in the 12 months through June, rising 1.3% on a monthly basis.
While the reading was flat, it is retreating as high months of inflation become worked out of the yearly calculation, with volatile months becoming excluded and replaced with more timid data points.
“This was a strong report for risk assets,” Tom Dunleavy, senior research analyst at Messari told Decrypt. “This inflation report is extremely positive if you are looking for less rate hikes in the back of the year.”
The crypto market reacted negatively following the previous two CPI reports. This time around, though, markets rallied on the suggestion that inflation could’ve peaked after running at its highest pace in four decades.
“It's like the numbers are everything now, essentially,” Kaiko’s Director of Research Clara Medalie told Decrypt. “Over the past six to eight months, these inflation reports have been tightly correlated to volatility for both stocks and equities.”
Crypto reacts to CPI numbers
In the hour following the report's release, Bitcoin was up 4.4% and Ethereum was up 7.5%, pushing daily gains for the coin to 3.5% and 7.2%, respectively, according to CoinMarketCap.
Other coins increased in price, too, including Polkadot, Solana, Uniswap, and Avalanche, all rising above 5% in the hour after the report’s release.
After announcing another interest rate hike of 75 basis points during its last meeting, the central bank’s chairman Jerome Powell said it would stop issuing forward guidance, leaving investors in the dark as to the Fed’s future course for monetary policy.
The Fed has been targeting inflation aggressively by making it more expensive for businesses and consumers to borrow, cooling the economy as demand for goods and services diminishes.
Dunleavy of Messari added, “The Fed is looking for signs that consumers are slowing their spending.” The latest CPI report now suggests that this may indeed be the case.
Inflation, interest rates and crypto
If inflation has peaked, the Fed won’t have to raise rates as much as they have so far this year.
Institutional investors have fled more speculative assets, including tech stocks and crypto, amid heightened interest rates that diminish growth, buying into more relatively stable investments, such as corporate bonds and U.S. Treasuries.
Dunleavy said that analysts put the chances of a third rate hike of 75 basis points at 80% prior to the latest release but that number “dropped to minuscule levels” following Wednesday’s flat reading.