Wednesday, October 5, 2022

Just In: Crypto Prices Fall As CPI Data Surfaces

On Tuesday, the consumer price index (CPI) data was released. However, the figures were a far deviation from the average projections of the crypto market. 

According to Investing.com data, the CPI shows an 8.3% year-over-year (YoY) change and 0.1% month-over-month (MoM) change. Whereas, by earlier estimations, those CPI figures were expected to be 8.1% YoY and -0.1% MoM. In addition, the core CPI also indicates a 6.3% YoY increase as opposed to the expected YoY of 6.1%.

BTC and ETH Prices Plunge on CPI Data Report

Usually, a bad CPI does not reflect well on the crypto market. And that is exactly what has just happened. The prices of leading cryptocurrencies Bitcoin (BTC) and Ethereum (ETH) began to nosedive shortly after the CPI was published. As of press time, BTC and ETH prices are both down by over 6%.

Meanwhile, the impact of CPI data on the crypto industry cannot be overemphasized. Being a key metric used in determining the level of inflation, the Federal Reserve uses the CPI to decide its monetary policy.

Interestingly, the Fed is already taking an aggressive approach to mitigating the current inflation levels. But had the CPI data report been favourable, maybe the Fed would have had to soften its stance.

Now, however, with the newly-published CPI data, the Fed will almost certainly maintain its hawkish stance. According to the CME Fed Watch tool, expectations are that the Fed will raise the interest rates by 75 bps. Recalling the last time such high-interest rates were implemented in May, the crypto market was entirely in reds.

It is also with mentioning that there might not be any recovery for the markets even after September. As Treasury Secretary Janet Yellen claims, the shortage of gas in Europe will also likely contribute to inflation prices going up during the winter period. Just like Yellen, the president of the Federal Reserve Bank of Cleveland, Loretta Mester, also says that multiple interest rate hikes should probably be expected in the coming weeks.

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