CPI Comes In Warm

Traders watch CPI prints carefully for clues on future interest rate decisions.

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Today's hotly-anticipated CPI figures are in at 3.7%, with core at 4.3%.

Expectations were that headline CPI for August would come in at 3.6% year-on-year vs 3.2% for July. Core inflation was expected to be 4.3% YoY vs 4.7% for July.

Global energy prices are to blame for the higher headline figures, while core figures (which are more important) strip out more volatile elements like food and energy.

Why Does CPI Matter?

Publication of Consumer Price Index data is always keenly watched by traders. A higher-than-expected CPI print means the markets need to adjust their expectations to take into account higher inflation, since this increases the chances of an interest rate rise, and therefore the reality that higher risk-free returns are available. Conversely, a lower-than-expected print means that rates are more likely to remain untouched, or to fall.

This is particularly important this week, after decidedly mixed figures about the health of the US economy. Strong jobless figures last week have forced markets to rethink their expectations yet again.

Initial jobless benefit claims fell by 13,000 to 216,000 for the week ending September 2, which is the lowest level since mid-February. The belief among economists was that new claims would rise by 2,000 to 230,000. Claims have now fallen for four weeks in a row.

Today's CPI figures don't fundamentally change that picture. However, although headline figures show slightly higher inflation, core is heading in the right direction.

The Impact On Crypto

Today's CPI print is particularly important for the crypto markets, which are battling several headwinds at present. The recent Death Cross confirms a bearish medium-term trend, while expectations of interest rates staying "higher for longer", and the consequent strength of the dollar, have made risk assets less attractive.

Add to that a picture of aggressive regulation against the industry, waning optimism that a spot ETF will be approved in the near future, and the prospect of hundreds of millions of dollars of crypto held by FTX being sold to reimburse customers, and the near-term outlook is bleak.

A positive CPI print would have been a ray of sunshine in a dark time for crypto, but it was not to be. At the time of publication, bitcoin remains unchanged, resting around the $26,200 mark.

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