US Inflation Hits 40-Year High of 9.1%, Sending Cryptocurrency Market Plunge

US Inflation Hits 40-Year High of 9.1%, Sending Cryptocurrency Market Plunge

The latest consumer price index data for June beat expectations, hitting a new four-decade high of 9.1%.

With inflation continuing to rise in the US, markets are already betting on another 75 basis point increase in the Federal Reserve later this month.

The June CPI reached its highest level in four decades, at 9.1%.

The latest inflation data released today by the US Bureau of Labor Statistics shows the Consumer Price Index – a benchmark measure of inflation – rose 1.3% during the month. of June 2022, which brings the annual US inflation rate at 9.1%, its highest level in 40 years. As in previous months, the gasoline, housing and food indexes contributed the most to the CPI. According to the bureau, the energy and gasoline indexes rose 7.5% and 11.2% in June, while food rose 1%. Core CPI, which excludes volatile energy and food prices, rose 0.7% over the same period.

Last month’s rise in inflation defied earlier estimates of an 8.8% increase. The consensus also called for a slowdown in core CPI in June compared to May or an increase of only 0.5%. Instead, real core inflation rose 20 basis points today.

The dollar index jumped to 108.57, its highest level in two decades, as news of the inflation rate surfaced, while the euro briefly extended its losses against the dollar, hitting 0, $9998.

As for the Federal Reserve, the market widely expects the central bank to raise the key federal funds rate by another 75 basis points at its next meeting scheduled for July 27. However, with the CPI numbers having been much higher than expected, the market also leaves a 14.2% chance of a 1% rate hike at the next Fed meeting. The Fed has raised rates three times this year, bringing the federal funds rate to 1.5% or 1.75%.

Raising the key interest rate makes credit more expensive and therefore reduces the money supply in the economy. In theory, this should reduce consumer demand for goods and services and lower inflation. However, American consumers, responsible for about 70% of the country’s economic growth, are already feeling the heat. As things stand, they are squeezed from both sides: they have to pay higher and higher prices for goods and services while paying higher interest rates on their loans.

Falling consumer demand, meanwhile, has a direct impact on corporate earnings, which could impact their stock prices. In turn, rising inflation and interest rates leave consumers with little money for discretionary spending, including investing in risky long-tail assets like cryptocurrencies.

In the fallout from today’s CPI print, the crypto space has taken a big hit. Bitcoin fell from around $19,920 to $19,180, while Ethereum fell 4.3% from $1,090 to $1,030. Other crypto assets also fell, bringing the global cryptocurrency market capitalization to around $889 billion.

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