Bitrabo Editorial
The crypto market and Bitcoin start a blockbuster week today. After the release of the Hinman documents in the legal battle between Ripple Labs and the US Securities and Exchange Commission (SEC) a few hours ago, the US Bureau of Labor Statistics released the inflation rates for the month of May in the USA at 8:30 am EST. The data was highly anticipated as it could signal a rapid decline in inflation on the one hand while being an important basis for tomorrow’s interest rate decision by the US Federal Reserve (Fed) on the other hand.
The announcement of the inflation rates comes at a critical time, with the US central bank potentially announcing a rate pause for the first time since the beginning of its rate hike cycle in March 2022. This could prove to be a positive for risk assets like Bitcoin and crypto, according to experts.
Consumer Price Index (CPI) – A Better Outcome Than Expected
The CPI was estimated to be 4.1% YoY, but the actual rate was announced to be 4.0% on an annual basis. Similarly, the headline CPI rose 0.1% month-over-month (MoM) against the expected 0.2%, indicating another positive outcome for risk assets.
The Core YoY inflation rate was predicted to be 5.3% and it was accurately met, while the Core MoM rate was also as expected at 0.4%. The decrease in the headline inflation rate was the real takeaway here, as it had fallen to 4% from 4.9% in April. However, the core inflation rate remained sticky, showing a small decrease from 5.5% YoY in April to 5.3% YoY in May, which is still higher than expected.
Impact on Bitcoin and Crypto
Bitcoin initially surged above $26,400 on the announcement but then fell to pre-CPI levels of about $26,166 at press time. Because the decrease was minimal and core inflation remains high, the market seems to be reacting cautiously. Nonetheless, all eyes will be on the Federal Reserve and Chairman Jerome Powell tomorrow, as any acknowledgment of disinflation or ruling out of further interest rate hikes could be critical.
Credit Suisse expects a significant decline in inflation over the next two months, which could be one of the biggest drops in a two-month period over the last 70 years.
Our work indicates that Y/Y inflation is likely to fall to 4.2% in May, 3.2% in June. This would represent one of the greatest drops experienced in a 2-month period over the past 70 years. (J. Golub)
Overall, the CPI release indicated a clear trend towards disinflation for the headline inflation rate, while the core rates remained sticky. As the Fed and investors seek faster drops in core rates, the market waits for the Fed’s decision tomorrow.
Featured image from iStock, chart from TradingView.com