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Bitcoin Continues Hot Streak as US PPI Numbers Suggest Slowing Inflation

2 mins
Updated by Ryan Boltman
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In Brief

  • Bitcoin breaches $21,400 as investors expect slower Fed rate hikes after lower U.S. PPI numbers in Dec. 2022.
  • The cost to manufacture goods fell 0.5% in Dec. 2022, beating analysts' 0.1% expectations.
  • While he expects the Fed to pause rate hikes after two increases, JPMorgan CIO Bob Michele still believes that rising wages will catalyze a U.S. recession later this year.
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Signs of receding inflation from Dec. 2022’s Producer Price Index see Bitcoin continue rising above the $16,000 to $17,000 mark it has occupied since the fall of FTX.

Bitcoin held firmly onto the gains from the previous fortnight to trade at around $21,400 as the lower month-on-month U.S. PPI suggests that the Fed’s tightening policy is taming inflation.

PPI Shows Dramatic Decline in Wholesale Costs

Wholesale prices fell 0.5% month on month in Dec. 2022, beating expectations of 0.1%. Excluding food and energy, the so-called core PPI rose one-tenth in Dec. 2022, down from a 0.4% rise in Nov. 2022.

U.S. Producer Price Index MoM | Source: YCharts

The PPI for final demand rose 6.2% year-on-year in Dec. 2022, beating analysts’ 6.8% estimate, while the core PPI for the year came in slightly lower at 4.6%. Retail sales were down slightly more than expected, falling 1.1% in Dec. 2022 compared to analysts’ 1% estimate. Without adjusting for inflation, the decline suggests softening consumer demand during the U.S. holiday season.

After the PPI release, Bitcoin is up 0.3% to $21,455, breaking out from its $16,000-$17,000 range earlier this week, while ETH rose 0.8% to $1,580.

BTC/USD chart
BTC/USD | Source: TradingView

Released monthly by the U.S. Bureau of Labor Statistics, the Producer Price Index measures how much domestic producers in hundreds of economic sectors pay to produce finished goods. When manufacturers pay more to create goods and services, they can pass some of that cost onto the consumer, contributing to inflation. A lower month-on-month PPI means manufacturers can pass on cost savings to the end user.

JPMorgan CIO Says Recession Still Likely Despite Investor Optimism

Investors are increasingly bullish as markets contemplate the end of central banks’ tightening policies and waning contagion effects from several major crypto implosions in 2022.

Bitcoin rose 28% during the two-week period that ended on Jan. 17, 2023, marking a rally unseen since the asset traded at around $1,000. According to Naeem Aslam of AvaTrade, Bitcoin would need to breach the $30,000 level for investors to breathe easy again.

“We are certainly in no way out of the woods. For that to happen, the Bitcoin price … needs to break above the $30,000 level,” he cautioned.

JPMorgan Asset Management CIO & Head of Fixed Income, Currency, and Commodities Bob Michele expects rate hikes in February and March 2023 as a base case, with a pause in rate hikes expected later in the year. 

Referring to recent jobs data that revealed weak wage growth and declining unemployment levels, Michele predicted a mid-year recession, followed by further rate hikes, as rising wages fuel additional inflation.

“The equation is: inflation doesn’t come down until wages do. Wages don’t come down until unemployment rises,” he said.

For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...