The US Consumer Price Index (CPI) data, which will be released tomorrow, Wednesday, May 15, at 8:30 AM ET, is expected to be a potentially major catalyst for the Bitcoin price. This expectation mainly stems from Bitcoin’s recent trend to react to macroeconomic news, indicating an increased sensitivity to such data in influencing market dynamics.
The CPI measures inflation by tracking changes in the price levels of a market basket of consumer goods and services. The upcoming report is of particular importance after three consecutive months of inflation data exceeding market expectations. Analysts are currently predicting a slight moderation in inflation rates for April, which could have implications for monetary policy and financial markets.
CPI example: what to expect
For April, economists expect the CPI to rise 3.4% year-on-year, a slight slowdown from March’s 3.5%. On a monthly basis, the increase is expected to slow to 0.3%, compared to 0.4% previously.
The core CPI, which excludes the more volatile costs of food and energy, is also expected to reflect a similar downward trend. The forecast points to a decline from 3.8% to 3.6% on an annual basis, which is the lowest annual core inflation rate since April 2021. Similarly, the monthly increase in the core CPI is expected to slow to 0.3% compared to the previous month. 0.4%.
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Economists from Goldman Sachs anticipate that the core CPI will continue to show disinflationary trends in the coming months, with monthly core CPI inflation forecast to fluctuate between 0.25% and 0.30% before falling to around 0.2% by the end of 2024 . The core annualized CPI is projected to stabilize at 3.5%, and core personal consumption expenditures (PCE) inflation, another key indicator monitored by the Federal Reserve, is expected to stabilize by December 2024 amount to 2.7%.
The CPI data generally plays an important role in influencing market dynamics, even more so than the Producer Price Index (PPI). However, the real implications for financial markets are likely to emerge once analysts review both the CPI and PPI reports. Today in particular (at 8:30 a.m. ET), it is rare for US PPI data to be released the day before CPI data.
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“PPI + CPI data has a very strong correlation. PPI has historically led the way for CPI figures. So expect the market to react more significantly than normal to any misconceptions,” noted crypto analyst Ted (@tedtalksmacro) warned today.
It is rare today for US PPI data to be released the day before CPI data.
PPI + CPI data has a very strong correlation. PPI has historically led the way for CPI figures.
So expect the market to react more significantly than usual to any misconceptions. https://t.co/BVlHuBMI1x pic.twitter.com/BCCpZac6ZW
— ted (@tedtalksmacro) May 14, 2024
How will Bitcoin react?
The Bitcoin and crypto markets have shown remarkable sensitivity to inflation rates and US Federal Reserve policies in recent months. Ted emphasized the importance of the upcoming inflation data, indicating that a slowdown in inflation could strengthen risk assets like Bitcoin.
He declared via
Inflation data is key.[…] Expect volatility, but this is the first time in a short time that inflation rates are likely to be sluggish. If true, that would be good for risky assets like Bitcoin and we could be on the cusp of a move higher there.
This feeling is echoed by Alex Krüger (@krugermacro), who captured the market sentiment succinctly: “CPI in line or soft: higher, CPI hot: lower, BTC is back in macro news trading.” This perspective underlines the prevailing market theory that softer inflation could lead to accommodative monetary policy, which tends to favor risky assets like Bitcoin.
At the time of writing, BTC was trading at $61,628.
Featured image created with DALL·E, chart from TradingView.com