Bitcoin Pumps 2% as CPI Report Signals a Rare Glimpse of Relief for Inflation Hawks

Today’s CPI report is in, and for the first time since July 2024, inflation got rekt. With December’s CPI showing signs of slowdown, inflation hawks are catching a rare glimpse of relief.

The Consumer Price Index (CPI) report for December arrived on Thursday, revealing a 2.9% year-over-year increase in headline inflation. This marked a slight uptick from November’s 2.7% rise and fell short of economists’ expectations of a 3% gain.

On a monthly basis, inflation rose by 0.4%, largely driven by higher fuel and food prices. Energy costs surged by 2.6%, with a 4.4% spike in gas prices contributing to 40% of the month's CPI gains. Food prices also remained elevated, with a 0.3% increase.

However, the Core CPI, which excludes volatile food and energy prices, rose by 0.2% in December, aligning with expectations and indicating a slowdown from November's 0.3% increase.

Annually, Core CPI increased by 2.3%, down from 2.4% in November and below the Federal Reserve's 2% inflation target. This measure of inflation is closely monitored by the Fed in its monetary policy decisions.

The December CPI report also highlighted a 0.2% increase in used car prices, providing some relief after several months of sharp price spikes. At the same time, transportation services inflation remained stubbornly high, with a 0.6% increase.

Overall, the CPI data offered mixed signals for the Fed. While headline inflation remained elevated, largely due to high energy and transportation costs, the Core CPI showed signs of slowing down.

This report comes at a crucial time as the Fed is expected to pause its interest rate hike campaign this month. Markets were anticipating a sigh of relief with this news.

Rising inflation has been a major concern for the Fed, prompting it to raise interest rates aggressively throughout 2024. This move, aimed at curbing inflation, has also impacted economic growth, with some predicting a recession in 2025.

However, December's CPI report showed signs of slowing down, bringing some optimism to the markets. Stock futures ticked up, and the 10-year Treasury yield fell below 4.7% as investor confidence received a slight boost.

But the Fed's battle is far from over, with used car prices and transportation inflation remaining stubbornly high, leaving inflation elevated and largely unpredictable.

This report is significant as it provides the latest update on inflation, a key factor in the Federal Reserve's monetary policy decisions. Rising inflation has prompted the Fed to raise interest rates aggressively in 2024.

While markets were anticipating a pause in rate hikes this month, the central bank is still aiming to bring inflation down to its 2% target without sacrificing too much economic growth.