Today, the United States will release its June inflation data. Will they break records again, or will they be better than expected? And what will be the impact on the market? Ahead of the publication of these figures, bitcoin has fallen by 2%.
Inflation expected to be 8.8
Today, the US inflation figures for June will be shared at 14:30 Dutch time. The market expects inflation to reach 8.8% and the central bank to increase the Fed’s key interest rate target by 75 basis points. One basis point stands for 0.01%, so the interest rate will then increase by 0.75%. This will be the third consecutive rate hike.
Bitcoin price drops ahead of announcement
The chart below is from our bitcoin price page, and the current price is 19,454 Euros. This means the value is 2% lower than it was 24 hours ago. Such percentages will shock many a stock and forex trader, but in the world of crypto, this is a normal Wednesday.
This weekend, it looked like bitcoin could settle comfortably above 20,000, but prices seem to be reacting negatively to statements made by White House press secretary Karine Jean-Pierre about US inflation.
White House expects high inflation
Whichever way you look at it, America remains the largest economy and traders around the world keep a close eye on all American data. That is why, all markets are looking forward to the press conference this afternoon.
So today, the US inflation figures for June will be published. These are also called the US consumer price index (CPI). Jean-Pierre warned of the possibility that inflation in June will be higher than in May.
“So on Wednesday, we will have new CPI inflation data, and we expect the headline figures, including gas and food, to rise dramatically, especially because gas prices were so high in June,” she said at a press conference on Monday.
Economists polled by Reuters expect the consumer price index (CPI) to rise both month-on-month and year-on-year in June, by 1.1% and 8.8% respectively.
What does this mean for bitcoin?
Let’s take a look at previous announcements of inflation rates this year. The chart below shows the increases or decreases on the day the CPI was announced and the effect on bitcoin’s price.
The chart says very little without the proper context as it is also about sentiment. Therefore, below is the date of CPI announcement, bitcoin price change and in brackets the actual CPI versus expectation. The expectations all come from the US central bank, the actual CPI comes from the US Department of Labor.
- 12 January: +1% (CPI 7.0 vs. 7.0 forecast)
- February 10: -2% (CPI 7.5 versus 7.2 forecast)
- March 10: -6% (CPI 7.9 versus 7.9 forecast)
- 12 April: +2% (CPI 8.5 versus 8.4 expected)
- 11 May: -7% (CPI 8.3 versus 8.1 expected)
- June 10: -3% (CPI: 8.6 versus 8.3 forecast)
Economists believe that a CPI of 8.8 will be announced today. Does this mean you should be bearish now? Absolutely not. These are just the statistics from the 2022 CPI reports.
The CPI matched or even exceeded what was expected in all six previous months. This means there has not yet been a CPI report in 2022 in which the actual inflation rate is lower than the consensus estimate. If it were, these figures might look a little less ominous.
What if CPI is lower?
There is a chance that this month’s CPI will be lower than the expected 8.8%. Tom Simons, economist at Jefferies, expects that June’s CPI may not be quite right, and that could mean expected inflation is higher than it actually is. He points out that many shops have reported low stock levels, which could mean lower prices in practice.
He expects that if June’s inflation figures are high, this could be the peak and that the markets will react positively to this. But it could also be that inflation is lower.
“If it turns out that inflation is lower than expected, the markets will also be encouraged,” he noted. “Either way, a relief rally is coming.”
