Bitcoin Price Rises After Surprising Drop in US Core Inflation (CPI)

The Bitcoin price has shown an upward movement after the publication of new inflation figures for the month of December in the US. This unexpected...

The Bitcoin price showed an upward movement after the publication of new inflation figures for the month of December in the US. This unexpected drop in core inflation brought optimism to the markets and affected not only cryptocurrencies but also traditional financial markets.

According to the latest facts from the Bureau of Labor Statistics, core inflation, which excludes volatile prices such as food and energy, rose just 0.2% in December. This was down from the 0.3% increase in November and marks the first decline in the annual core inflation rate since July. On an annual basis, core inflation came in at 3.2%, while analysts had expected a stable 3.3%. This means that core inflation has now been at a high of 3.3% for four months before finally starting to fall.

Although the overall consumer price index (CPI) rose 0.4% in December — slightly above analysts’ expectations — the annual increase remained at 2.9%, as forecast. This was an increase compared to the 2.7% measured in November. Nevertheless, the unexpected drop in core inflation caused a positive reaction in financial markets.

The markets immediately reacted to the news. Shortly after the announcement, the Bitcoin price rose by $1,500 to $98,500. It has now risen further and stands at $99,146 at the time of writing, an increase of 3.4% within 24 hours. With this, Bitcoin continues to consolidate in a range just below the psychological barrier of $100,000. Since Federal Reserve Chairman Jerome Powell’s comments in December, Bitcoin has struggled to break through this level. His ‘hawkish’ stance on monetary policy and stronger-than-expected economic data have significantly dampened expectations for further rate cuts.

Not only the crypto market responded positively. U.S. stock futures rose about 0.5%, while Treasury yields fell. For example, the 10-year yield fell by 11 basis points to just under 4.7%. The value of the US dollar also saw a sharp decline.

Core inflation remains a key focus for Federal Reserve policymakers. Despite the decline in December, the costs of housing, insurance and medical care remain stubbornly high. In addition, used car prices have shown a strong increase for the third month in a row, with an increase of 1.2% in December after a 2% increase in November. These price increases highlight that inflationary pressures have not yet completely disappeared.

Seasonal factors, such as higher fuel costs and continued food price increases, have further increased headline inflation rates. Still, the drop in core inflation offers some relief for investors and policymakers, who hope inflation will move closer to the Federal Reserve’s 2% target.

In addition to economic data, the political situation in the United States plays a role in the inflation outlook. With Donald Trump’s upcoming inauguration as president, some economists predict that his proposed policies, such as high import tariffs, corporate tax cuts and immigration restrictions, could create inflationary pressures. These measures could pose challenges for the central bank in determining future interest rates.

Cryptocurrencies such as Bitcoin have shown price movements throughout January that are closely linked to macroeconomic data and monetary policy expectations. The Bitcoin price has mainly traded between 10% and 15% below record levels as the market reacted to economic data and Federal Reserve policy.

Earlier in the week, Bitcoin suffered a sharp drop below $90,000 but recovered to $97,000 after cooler-than-expected inflation data in the producer price index (PPI). This once again highlights the volatility of the crypto market and its sensitivity to economic indicators.

As investors prepare for the Federal Reserve’s next interest rate meeting, the Bitcoin price remains an interesting gauge of market sentiment. With the decline in core inflation, new speculation may arise about the possibility of rate cuts later this year, which could benefit risky assets such as cryptocurrencies. However, persistent uncertainty about inflation and monetary policy is likely to continue to weigh on markets for some time to come.