The US Consumer Price Index (CPI) for September rose 3.7% annually, slightly exceeding expectations. However, core CPI, which excludes volatile food and energy categories, decreased from 4.3% in August to 4.1% last month.
In September, headline inflation increased by 0.4% compared to the previous month, lower than August’s 0.6% increase. Core month-on-month prices rose by 0.3%. The rise in core inflation, combined with the slightly higher-than-expected Producer Price Index (PPI) from last month, may influence the Federal Reserve (Fed) to consider another interest rate increase at its next meeting.
CPI Good for Dollar, Bad for Bitcoin
The slight decline in headline CPI numbers led to a five basis points increase in yields on 10-year treasuries, reaching approximately 4.6%. The US dollar index responded positively to the consumer price figures, surging to 106.1 after experiencing mild losses following the PPI numbers.
Bitcoin (BTC) experienced a slight drop from $26,836 to $26,767, while Ethereum (ETH) recovered to $1,551 after briefly dipping to $1,546 following the CPI announcement. At the time of writing, the S&P 500 was hovering around 4,370 after reaching a session low of 4,369.5 shortly after the trading day began.
Fed Must Juggle Multiple Inflation Risks
Economists predict that if the conflict between Israel and Hamas causes oil prices to reach $100 per barrel, October’s headline CPI could rise by 0.4%. Other sector-specific events, such as the ongoing United Auto Workers strike and the deadlock in Hollywood wage negotiations, could also influence prices.
The demand for a viewership bonus from actors in Hollywood would cost the Alliance of Motion Picture and Television Producers around $800 million annually. Ford has proposed a wage increase of 23%, which, including benefits, would amount to a 30% rise.
These increases may put pressure on the Fed to raise interest rates amid an already strong labor market. Additionally, the central bank must monitor tightening credit conditions. Higher rates are causing losses in sovereign bonds and leading many companies to secure junk bond financing at higher rates. The “higher-for-longer” rhetoric is also driving investors towards US government treasuries, increasing the national debt.
Hot Take: CPI’s Impact on Dollar and Bitcoin
The US CPI results had a positive effect on the dollar and a negative impact on Bitcoin. The dollar strengthened after the inflation figures were released, while Bitcoin experienced a slight decline. This outcome reflects investors’ confidence in the US economy due to lower inflationary pressures.
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