U.S. Inflation Gauge Jumps to Fresh 4-Decade High of 9.1%; Bitcoin Falls

Helene is a U.S. market reporter at CoinDesk. She covers the US economy, Fed and bitcoin. She is a recent graduate from New York University’s program in business and economic reporting.

The U.S. Consumer Price Index, (CPI), tracked inflation at 9.1% in June. This was an increase from May’s 8.6% pace and a new 40-year high that exceeded economists expectations.

In the few minutes since the report was published, Bitcoin’s value fell 4.2% to $19,200. The Federal Reserve may need to continue tightening monetary conditions to curb inflation, according to speculation.

All cryptocurrencies traded in green Wednesday during the hours before the CPI release. Bitcoin ( BTC) traded at $19,786 early in the morning.

Since October 2021, inflation has been increasing rapidly and the cryptocurrency is being used as an inflation hedge by some traders.

Given the decline in oil and gasoline prices, it is possible that June’s price data will end up being a peak for inflation.

Jonathan Silver, founder of Affinity Solutions and CEO, said that there are positive signs that indicate the worst is over. Affinity Solutions is a global insight firm that tracks consumer buying habits.

“The job market is strong which is putting money into people’s pockets. However, price rises are still exceeding people’s salaries. This trend should reverse once inflation reaches its peak, and starts to diminish. He stated that the direction in which we are heading is based on our purchase spending data.

Federal Reserve implications

Federal Reserve’s monetary policy panel, the Federal Open Market Committee (Federal Reserve), is set to meet July 26-27 in order to discuss further tightening. The new inflation high could allow central bankers to give green light to another rate hike. They have prioritised the fight to stabilize prices above any push for economic expansion at this time.

“Is there a chance we would go too far?” Jerome Powell, Fed Chair, stated that there is a risk. This was during a conference at the European Central Bank Forum. “Failing to restore price stability would be the bigger mistake,” Powell said.

One definition is that two consecutive quarters with a slowdown in gross domestic products (GDP), would indicate that the U.S. has entered a recession. But Powell and other central bankers point out the strong labor market which indicates that the economy remains very strong.

Silver stated that spending over the next months will depend on a number of key factors, including a possible Covid resurgence and the war in Ukraine. If supply chain pressure eases, rate hikes may also have an impact on consumer spending. It will be interesting to see how the summer hangover subsides and what the future holds for the economy, Covid and war in Ukraine.