The Consumer Price Index (CPI) for November was released by the U.S. Bureau of Labor Statistics on December 13. For the sixth month, analysts expected inflation to fall, with November 2022 seeing a rate of 7.3%.
The CPI rate peaked at 7.1%, at its lowest level since December 2021. The CPI is an important indicator of price stability in the US economy since it monitors the change in the prices of a basket of consumer items. Because of this, the central bank watches this number closely.
Bitcoin and cryptocurrency prices are extremely sensitive to expectations of increased inflation, making U.S. CPI data crucial for traders.
Consequently, the price of Bitcoin has already reached its weekly and December highs in anticipation of a lower-than-expected inflation reading. Just hours before the publication, the biggest asset by market capitalization reached a new monthly and weekly high of $17,479.
While Bitcoin remains 74.8% below its all-time high of $69,044, a drop in core CPI might enhance capital inflows to risk assets. Lower inflation rates provide credence to the bullish argument for a bitcoin rally in the fourth quarter of 2022.
Even more impressive than bitcoin’s surge is Ethereum‘s, which has risen about 6% over the past 24 hours to trade at around $1,320. Among the other notable gainers were XRP (up 4%), Dogecoin (up 5%), and Polygon (up 4%).
As the CPI data reflects the level of inflation, the Federal Reserve typically responds by raising or reducing interest rates. The Federal Reserve Board has been raising interest rates at a record pace recently in an effort to slow inflation. Given signs of slowing inflation and recent Fed remarks, it seems probable the Fed will continue to hike rates, although possibly not as aggressively.
Stocks and cryptocurrencies react to higher interest rates. Increasing interest rates raises the cost of borrowing from banks and makes debt more costly. Thus, when rates climb, money slows in the economy. On the contrary, lowering interest rates can do the opposite.