The US Consumer Price Index (CPI) data, which will be released tomorrow, May 15 (Wednesday), at 8:30 a.m. ET, is expected to be a potentially significant catalyst for Bitcoin’s price. This expectation is due in particular to Bitcoin’s recent trend of reacting to macroeconomic news, which indicates the increased sensitivity of such data to market dynamics.
The CPI measures inflation by tracking changes in the price levels of a market basket of consumer goods and services. The upcoming report is of particular interest after three consecutive months in which inflation data were higher than market expectations. Analysts are now forecasting a slight slowdown in inflation rates in April, which may have consequences for monetary policy and financial markets.
CPI preview: what to expect
Economists expect the CPI to enhance year-on-year by 3.4% in April, a slight slowdown compared to March’s 3.5%. On a monthly basis, growth is expected to tardy to 0.3% from 0.4% previously.
Core CPI, which excludes more variable food and energy costs, is also expected to reflect a similar downward trend. The forecast suggests a decline from 3.8% to 3.6% y/y, marking the lowest annual core inflation rate since April 2021. Similarly, monthly core CPI growth is expected to decelerate to 0.3% compared to the previous month 0 .4%.
Goldman Sachs economists provide that core CPI will continue to show disinflationary trends in the coming months, with monthly core CPI inflation forecast to range from 0.25% to 0.30% and then decline to around 0.2% to end of 2024. Year-over-year core CPI is forecast to stabilize at 3.5% and core personal consumption expenditure (PCE) inflation, another key indicator tracked by the Federal Reserve, is expected to be 2.7% by December 2024
CPI data typically plays a significant role in influencing market dynamics, more so than the Producer Price Index (PPI). However, the real implications for financial markets are likely to emerge when analysts review both the CPI and PPI reports. It is worth noting that today (8:30 a.m. ET) it is occasional for US PPI data to be released the day before CPI data.
“PPI + CPI data show a very strong correlation. PPI has historically been the leader in terms of CPI indicators. Therefore, we should expect a more significant than usual market reaction to any failure to meet expectations,” warned renowned cryptocurrency analyst Ted (@tedtalkssmacro) today.
Today, it is occasional for PPI data in the US to be published the day before CPI data.
PPI + CPI data show a very sturdy correlation. PPI has historically been the leader in terms of CPI indicators.
The market should therefore be expected to react more significantly than usual when expectations are not met. https://t.co/BVlHuBMI1x pic.twitter.com/BCCpZac6ZW
— ted (@tedtalkssmacro) May 14, 2024
How will Bitcoin react?
Over recent months, Bitcoin and cryptocurrency markets have shown significant sensitivity to inflation data and U.S. Federal Reserve policies. Ted stressed the importance of upcoming inflation data, pointing out that slowing inflation could boost risky assets like Bitcoin.
He he stated by X:
Inflation data is in the spotlight.[…] Expect some volatility, but for the first time in a long time we will likely see a slowdown in inflation data. If this is true, it will be good for risky assets like Bitcoin and then we can be a step higher.
This feeling is there it happened again Alex Krüger (@krugermacro), who succinctly captured the market sentiment: “CPI in line or soft: higher, hot CPI: lower, BTC returns to trading macro news.” This perspective underscores the prevailing market theory that milder inflation can lead to more accommodative monetary policy, which tends to benefit risky assets like Bitcoin.
At the time of publication, the BTC price was $61,628.
Featured image created with DALL·E, chart from TradingView.com
