02 March, 2024

Upcoming January CPI and Core CPI Set to Influence Crypto Market Sentiment

3 weeks ago

13 Feb, 2024

  • The January CPI report is crucial for assessing the Federal Reserve’s handling of inflation, potentially delaying expected rate cuts to May or June.
  • FactSet forecasts a 0.2% rise in the January CPI, reflecting steady inflation rates and influencing investor shifts towards alternative assets like cryptocurrencies.
  • A significant decrease in December’s PPI by 0.1% year-over-year, suggesting a milestone in inflation control efforts, impacts future economic expectations.

Investors are setting their sights on the forthcoming January CPI report, slated for release at 8:30 a.m. EST on Tuesday, February 12. The report is crucial for evaluating the Federal Reserve’s effectiveness in combating inflation. While there were initial expectations for a rate cut in March, the Fed is now leaning towards postponing this adjustment to May or June. This shift is significant for market sentiment.

According to FactSet, the U.S. Consumer Price Index (CPI) for January is expected to see a 0.2% rise. This forecast matches the increase observed in December. The Core CPI, which excludes food and energy prices, is also projected to increase by 0.3% in January, mirroring the previous month’s trend. 

On a year-over-year basis, the CPI is anticipated to climb by 2.9% in January. This is a slight decrease from the 3.4% rise seen in December. Meanwhile, the Core CPI is expected to mark a 3.7% increase, down from 3.9% in the preceding month.

The CPI is a key metric that tracks the average price changes over time for a basket of consumer goods and services. It is a primary gauge of inflationary pressures. Increases in CPI or Core CPI often prompt investors to turn to alternative assets such as gold or cryptocurrencies. These are considered hedges against the devaluation of fiat currency.

Katie Nixon, Chief Investment Officer at Northern Trust Wealth Management, has shared her expectations in a Morningstar report. She believes January’s CPI will continue to show positive trends, albeit at a slower pace compared to the drop in PCE inflation. The Fed prefers the PCE measure for gauging inflation. This anticipated slowdown in CPI growth could influence the attractiveness of cryptocurrencies like Bitcoin as inflation hedges.

The relationship between CPI and the Producer Price Index (PPI) suggests that movements in CPI could be mirrored by the PPI. Despite inflation concerns, December saw a 0.1% decrease in PPI, with a year-over-year increase of 1%, marking a significant point in controlling inflation. This trend could play a critical role in curbing further inflationary pressures. 

With a week filled with important economic events ahead, including critical CPI reports and Federal Reserve speeches, the financial landscape is brimming with anticipation. As of now, the total market capitalization of crypto markets has reached its highest level since April 2022, hitting $1.9 trillion after a 1% increase during the Monday morning Asian trading session.

Last year, the release of the Consumer Price Index (CPI) for August had a notable impact on cryptocurrency markets, sparking a surge in prices. The reported 3.7% increase in CPI exceeded expectations, signaling a faster pace of inflation than anticipated. Additionally, the Core CPI, excluding volatile items like food and energy, recorded a significant rise of 4.3%. 



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