According to the CPI report, inflation may have reached its peak in the United States after it rose at its fastest rate in over 40 years. According to the Consumer Price Index report (CPI), prices for consumers remained flat. This indicates that inflation is at 8.5%.
Analysts had predicted that the index, which tracks price movements across wide range of goods, would rise 0.2% to indicate inflation at 8.7% year-over-year.
Inflation remained stable last month, which is a sign that the Federal Reserve’s interest rates hikes are taking the heat out of rising prices.
Inflation showed an increase of 9.1% in prices over the 12 months to June and a rise of 1.3% monthly.
The reading was not flat but it is now retreating, as the annual calculation includes volatile months and the removal of high inflation months.
“This report was strong for risk assets,” Tom Dunleavy (senior research analyst at Messari), told decrypt. If you’re looking for lower rate hikes at the end of the year, this inflation report is very positive.”
Following the two previous CPI reports, the crypto market was negatively affected. Markets rallied this time on the idea that inflation could have peaked after it had run at its fastest pace in four decades.
“It’s almost like the numbers are all now,” Kaiko’s Director for Research Clara Medalie said to Decrypt. These inflation reports have been closely correlated with volatility over the past six to eight month for stocks and equities.
Bitcoin rose 4.4%, while Ethereum rose 7.5% in the hour that followed. This pushes daily gains to the coin to 3.5% vs 7.2% according to CoinMarketCap.
Other coins saw their prices rise too: Polkadot and Solana. Uniswap and Avalanche all rose above 5% within an hour of the report’s publication.
Jerome Powell, chairman of the Fed, announced another 75 basis point interest rate increase during its last meeting. Investors are left in suspense about the Fed’s future monetary policy.
Inflation has been a major target of the Fed. They have made it more costly for consumers and businesses to borrow money, and cooling down the economy when there is less demand.
Dunleavy of Messari said, “The Fed looks for signs that consumers slow down their spending.” This is evident in the latest CPI report.
Cryptography, inflation and interest rates
The Fed will not have to raise rates if inflation reaches its peak, as they did so far this year.
In an environment of rising interest rates, institutional investors are now avoiding speculative assets like crypto and tech stocks. Instead, they are buying more stable investments such as U.S. Treasuries and corporate bonds.
Dunleavy stated that analysts had placed the chance of a third rate increase of 75 basis points at about 80% before the latest release, but that number “dropped significantly” after Wednesday’s flat reading.