US Inflation Jumps More than Expected in June; Bitcoin & Ethereum Fluctuate
Annual inflation in the US hit 9.1% in June, or more than what analysts had expected, and up from 8.6% in May. It reached the highest level in over 40 years.
In a month, prices jumped 1.3%, also more than expected. The so-called annual Core-CPI (consumer price index) – which excludes prices of food and energy – stood at 5.9%.
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.
Right after the announcement, bitcoin (BTC) dropped, sliding from above USD 19,900 to below USD 19,100, while ethereum (ETH) moved from USD 1,090 to USD 1,020. However, both top cryptoassets rebounded sharply. At 17:59 UTC, BTC was near USD 19,900 again and was unchanged in a day, while ETH moved above USD 1,090 and increased daily gains to almost 2%.
According to a Bloomberg estimate, the headline inflation number for June was expected to come in at 8.8% annually, while the so-called Core-CPI (consumer price index) – which excludes prices of food and energy – was expected to be 5.7%, down from 6% one month earlier.
Breaking: June CPI hits 9.1%, highest in 41 years— Squawk Box (@SquawkCNBC) July 13, 2022
"Year over year this is really hot," says Rick Santelli. pic.twitter.com/X2ati97C0i
The number was estimated to come in high after White House spokesperson Karine Jean-Pierre during a press conference on Monday said she expects inflation to be “highly elevated.”
At the same time, the White House took the opportunity to downplay the importance of the number, saying it is “backwards-looking” and “already out of date.” Among other things, fuel prices in the US have dropped to an average of USD 4.63 a gallon, down from over USD 5 a gallon a month ago.
Price increases over last year (CPI report)…— Charlie Bilello (@charliebilello) July 13, 2022
Fuel Oil: +98.5%
Gas Utilities: +38.4%
Food at home: +12.2%
New Cars: +11.4%
Overall CPI: +9.1%
Food away from home: 7.7%
Used Cars: +7.1%
Ahead of the release of the inflation report, Chris Weston, head of research at the forex and crypto broker Pepperstone, wrote in a note cited by Bloomberg that a reading for headline inflation below 8.5% could lead to a scenario where the US dollar “drops universally” and “crypto goes up 5%+.”
The comment came after Weston last Friday said that “a big CPI number” should “solidify expectations” for a 75-basis point interest rate hike by the US Federal Reserve (Fed) on July 27. He said the market is already “firmly” pricing in such a hike, followed by a 50-basis point hike in September.
Others, such as Tom Simons, money market economist at investment bank Jefferies, told CNBC that the release of the inflation number is likely to result in a relief rally in the markets, almost no matter what the number is.
“If it comes in higher than expected, we’ll feel this is definitely the peak,” Simons said, adding that markets will also be encouraged that the pace of inflation could slow if the number comes in lower than expected.
“Either way, we’re going to end up with some kind of relief rally,” he said.
Meanwhile, from the crypto-native camp, Alex Krüger, a popular crypto trader and economist, said earlier this week that his view is that inflation “comes in even higher” than the expected 8.8%, and that any “large dip [in asset prices] gets bought.”
Today, after the inflation numbers were announced, he said that they are “too hot.”
Numbers too hot, I'm out. Good thing about trading crypto around macro data is that it generally gives you more time to react than traditional risk assets.https://t.co/uXtpcRfugm— Alex Krüger (@krugermacro) July 13, 2022
The ongoing interest rate hikes in the US – which by many is believed to be a major driver for the current crypto bear market – are a result of the Fed’s determination to bring inflation down.
According to Fed Chair Jerome Powell, it is “certainly a possibility” that interest rate hikes will cause a recession. However, it is still “absolutely essential” to bring inflation down, Powell said during a congressional hearing in June.
And according to some economists, this is now exactly what could be happening, with Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, telling the Wall Street Journal “there’s a pretty serious recession fear affecting a broad range of asset prices.”
As of Wednesday, Bloomberg’s US recession tracker model indicated a 38% chance of a recession in the next 12 months, with Anna Wong, US economist at Bloomberg Economics, saying the risk is that a recession could be “self-fulfilling.”
“The risk of a recession in early 2023 has risen substantially,” Wong said.
– The Coming Recession is Going to Hit Crypto, but Not as Hard as You Think
– 5 Ways That the Super-Strong US Dollar Could Hurt the World Economy
– Inflation Should Be Viewed as Public Enemy Number 1
– We Now Understand How Little We Understand About Inflation – Fed’s Powell
– Bitcoin Better at Tackling Rate Hikes than Ethereum, Stocks – Report
(Updated at 18:01 UTC with the latest market data.)