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Why New CPI Inflation Data Is Bullish for US Dollar and Bearish for S&P 500 and Bitcoin

2 mins
Updated by Geraint Price
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In Brief

  • Annual US inflation came in slightly hotter than expected, while month-on-month headline inflation cooled from 0.6% to 0.4% in September.
  • In the meantime, Bitcoin (BTC) dropped by 0.3%, while both the dollar strength and treasury yields climbed as economists' forecasts panned out.
  • The Fed faces inflation risks from the wage deadlocks that could strengthen the labor market, and oil supply shocks caused by Israel war.
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The US Consumer Price Index (CPI) for September rose 3.7% annually, coming in slightly hotter than consensus forecasts of 3.6%. So-called core CPI, excluding volatile food and energy categories, declined annually from 4.3% in August to 4.1% last month.

Headline inflation rose 0.4% month-on-month in September, lower than August’s increase of 0.6%, while core month-on-month prices increased 0.3%. The uptick in core inflation, coupled with last month’s slightly hotter-than-expected Producer Price Index (PPI), could nudge the Federal Reserve (Fed) toward one more rate increase at its next meeting.

CPI Good for Dollar, Bad for Bitcoin

The mild decline in headline CPI numbers caused yields on 10-year treasuries to climb five basis points to around 4.6%. The US dollar index, which notched mild losses after yesterday’s PPI numbers, responded positively to the consumer price numbers, spiking to 106.1.

CPI Bitcoin Dollar, Dollar Strength Index
US dollar index | Source: TradingView

Bitcoin (BTC) dropped from $26,836 to $26,767, while Ethereum (ETH) has recovered to $1,551 after a brief dip to $1546 following the CPI announcement. At press time, the S&P 500 hovered around 4370 after falling to a session low of 4369.5 a little while after the trading day opened.

Read more: Crypto vs. Stocks: Where To Invest Your Money in 2023

By and large, the inflation report conformed with analysts’ expectations, with previews expecting the Hamas-Israel conflict to tip prices slightly upward. Economists have penciled in a pause in Fed rate hikes for the rest of the year as a base case, with further inflation risk tipping the scale towards one more increase.

CPI Bitcoin Dollar, CME FedWatch Tool
CME interest rates | Source: CME FedWatch Tool

Read more: 7 Ways To Handle Retirement With Increasing Inflation

Fed Must Juggle Multiple Inflation Risks

Economists predict that if the Israel conflict causes oil prices to reach $100 per barrel, October’s headline CPI could rise 0.4%. Other sector-specific events could also influence prices, such as the ongoing United Auto Workers strike and the deadlock in Hollywood wage negotiations.

Actors are demanding a viewership bonus that would cost the Alliance of Motion Picture and Television Producers around $800 million annually. Ford has proposed a wage increase of 23%, which, with benefits, would amount to a 30% rise.

These increases would pressure the Fed to increase rates amid an already robust labor market. The central bank must also keep an eye on tightening credit conditions.

Higher rates are increasing the losses in sovereign bonds and causing many companies to raise junk bond financing at elevated rates. The “higher-for-longer” rhetoric is also pushing investors towards buying US government treasuries, increasing the US national debt.

Do you have something to say about the effect of the US CPI on the dollar and Bitcoin, or anything else? Please write to us or join the discussion on our Telegram channel. You can also catch us on TikTokFacebook, or X (Twitter).

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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,...