Key Takeaways
- Inflation in the US hit a 40-year high of 9.1% in June 2022, according to the Bureau of Labor Statistics.
- Growing energy and gas prices were the key drivers of the rise.
- In reaction to the CPI release, Bitcoin and the rest of the cryptocurrency market fell.
Due to the persistent increase in US inflation, the markets anticipate a 75-basis point interest rate hike from the Federal Reserve later this month.
US annual inflation hit 9.1% in June, the highest in over 40 years.
US Inflation At A New High
According to the US Bureau of Labor Statistics inflation statistics, the Consumer Price Index, a key measure of inflation, rose by 1.3% in June 2022, bringing the annual US inflation rate to a new 40-year high of 9.1%.
Similar to past months, the most significant contributions to the CPI were the petroleum, housing, and food indexes. The energy and fuel indexes increased by 7.5% and 11.2% in June, while the food index increased by 1%. The annual Core-CPI, which excludes food and energy prices, rose by 0.7% during the same period.
It’s a “further blow to economic and social well-being. Highlights Fed’s worst policy mistakes in decades,” Mohamed A. El-Erian, President of Queen’s College at Cambridge University, reacted.
Bitcoin (BTC) fell from over USD 19,900 to below USD 19,100 immediately after the news, while Ethereum (ETH) moved from USD 1,090 to USD 1,090. Nonetheless, the leading crypto assets recovered significantly. At 17:59 UTC, BTC was at USD 19,900 and stayed unchanged from the previous day, while ETH went over USD 1,010 and expanded daily gains to about 2%.
According to a Bloomberg estimate, the headline inflation for June was anticipated to be 8.8%, while Core-CPI was anticipated to be 5.7%, down from 6% one month earlier.
Price increases over last year (CPI report)…
Fuel Oil: +98.5%
Gasoline: +59.9%
Gas Utilities: +38.4%
Electricity: +13.7%
Food at home: +12.2%
New Cars: +11.4%
Overall CPI: +9.1%
Transportation: +8.8%
Food away from home: 7.7%
Used Cars: +7.1%
Shelter: +5.6%
Apparel: +5.2%— Charlie Bilello (@charliebilello) July 13, 2022
White House spokesman Karine Jean-Pierre said at a news conference on Monday that she expected inflation to be significantly elevated. Consequently, the figure was predicted to be high.
Simultaneously, the White House downplayed the significance of the number, stating that it is backward-looking and already obsolete. Fuel costs in the United States have decreased to an average of $4.63 per gallon, from nearly $5 per gallon a month earlier.
Experts’ Views Of US Inflation
Before the release of the inflation report, Chris Weston, head of research at the forex and cryptocurrency broker Pepperstone, wrote in a note cited by Bloomberg that reading for headline inflation below 8.5% could lead to a scenario in which the US dollar falls everywhere, and crypto goes up 5%+.
The remark was made after Weston said on Friday that a considerable CPI number should consolidate expectations for a 75-basis point interest rate rise by Fed on July 27. According to him, the market was firmly pricing in this hike, followed by a 50-basis point rise in September.
Others, such as Tom Simons, money market economist at investment bank Jefferies, said that the revelation of the inflation data would almost certainly result in a relief bounce on the market.
According to Simons, if it comes in lower than predicted, the markets will be reassured that the rate of inflation may be slowing. If it comes in higher than projected, the peak has been reached.
“Either way, we’re going to end up with some kind of relief rally,” he said.
Alex Krüger, a prominent crypto trader and economist, said earlier that he believes inflation would come in much higher than the anticipated 8.8% and that any “large dip [in asset prices] gets bought.”
I’m positioned for upside and ready to add post number either higher or lower … unless headline comes in at 9% or higher. If so, I’ll go flat, and look for short scalps.https://t.co/KJqjPMUBY0
— Alex Krüger (@krugermacro) July 13, 2022
The continuous interest rate rises in the United States, expectedly a key factor in the current crypto bear market, are the outcome of the Federal Reserve’s aim to reduce inflation.
According to Fed Chair Jerome Powell, a recession is possible that interest rate hikes will lead to a recession. Powell said at a June congressional hearing that reducing inflation is extremely necessary.
Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, told the Wall Street Journal that there’s a genuine worry of a recession impacting various asset values.
As of Wednesday, Bloomberg’s US recession tracker model predicted a 38% possibility of a recession over the next 12 months. Anna Wong, a US economist at Bloomberg Economics, expressed his concern over a recession that may self-fulfil.
“The risk of a recession in early 2023 has risen substantially,” Wong said.