Surprise, surprise, inflation is still lurking about and Bitcoin is taking a heavy blow. The Consumer Price Index (CPI) report was released Thursday. The CPI – which tracks the general price of goods across the U.S. – rose 8.2% in September from the same month a year ago, above the forecasted 8.1%.
The CPIs And Inflation
CoinDesk U.S. markets reporter Helene Braun added good color Thursday morning, writing: “The ‘core’ CPI, which strips out volatile energy and food prices and is more closely watched by investors and policymakers because it’s seen as a more steady indicator of underlying price pressures, rose 0.6%.”
Let’s pause quickly – so now we have two CPI numbers. One CPI number – the CPI – is the CPI number: the change in the price of consumer goods. The other CPI number – the core CPI – is the pro forma, adjusted CPI number. This implies the change in the price of consumer goods. That is, if we don’t include the price of things that are volatile. Things that are volatile but not that important.
That’s things like food and energy. Arguably the most important things in general. From that same Helene Braun article: “Health insurance, for example, was up 28% year over year which is the largest increase ever. Similarly, groceries were 13% more expensive than a year ago and rent prices surged 7.2%, the highest in four decades.”
Bitcoin And Inflation
So health care, food and rent are all more expensive in the U.S. (the highest in 40 years). However, inflation is not that bad if you squint your eyes and tilt your head a little bit. C’est la vie.
According to a statement from the Biden administration: “Today’s report shows some progress in the fight against higher prices, even as we have more work to do. Inflation over the last three months has averaged 2%, at an annualized rate.” Putting political grandstanding aside, what did the market have to say in response to the CPI news?
Bitcoin And The CPI
Well, right at 12:30 UTC (8:30 a.m. ET), when the CPI report was released, the price of bitcoin (BTC) fell 4%. It had also faltered some 1% around 10:15 UTC (6:15 a.m. ET) in anticipation of the CPI report.
Then bitcoin spent the remainder of the day grinding up to $19,410 by 8:30 p.m. ET, up 2.3% over 12 hours.
We’ve seen this before. When Federal Reserve Chair Jerome Powell announced a 50 basis point increase in the federal funds rate, we saw changes. Bitcoin, the U.S. dollar, the Nasdaq 100, U.S. Treasury yields, the S&P 500 and gold (so basically everything) immediately move aggressively. They moved up or down and then just as aggressively move back the opposite direction down or up.
Somehow, the S&P 500 proved not to be immune to the noise again and did the same thing as bitcoin. The S&P 500 started the day down and then rallied to end the day up 4.7%. Stocks are starting to look as volatile as bitcoin these days. Checkmate, Janet Yellen.
Instead of diving deep into why this happened, I’m going to leave you with one very good tweet from Sam Ro, who writes the TKer newsletter:
“Stocks fell as hot CPI report implied tighter monetary policy, then rallied amid prospects that too tight monetary policy will cause a downturn that would prompt loose monetary policy.”