Cryptocurrencies

The all-important inflation figures from America are out!


Inflation in the United States fell slightly in June, raising the possibility that the Federal Reserve will cut interest rates later this year, according to the latest figures from the US Department of Labor. This development could have important implications for the economy and financial markets.

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Inflation to fall in June

According to the Bureau of Labor Statistics report the consumer price index (CPI) fell by 0.1% in June compared to May. This brought annual inflation to 3%, the lowest level in more than three years. In May, inflation was 3.3% on an annual basis.

Core inflation, which excludes the often volatile prices of food and energy, rose 0.1% on a monthly basis. On an annual basis, core inflation came in at 3.3%, below the expected 3.4%.

Factors behind the decline

A major factor in the decline in inflation was the 3.8% decline in gasoline prices, which offset a slight 0.2% increase in both food and housing costs.

Used car prices also fell significantly, by 1.5% month-on-month and 10.1% year-on-year. This is a notable development, as rising car prices have previously been a major driver of inflation.

Consequences for the economy

The decline in inflation could give the Federal Reserve more room to cut interest rates, which could lead to cheaper borrowing and more economic growth.

Source: https://www.bls.gov/cpi/

Financial markets reacted positively to the news. Share prices rose, while government bond yields fell. This suggests that investors are taking into account a possible rate cut in the near future.

Impact on Bitcoin and Digital Assets

Falling inflation could be an interesting development for Bitcoin and other digital assets. Traditionally, these are often seen as a hedge against high inflation. Lower inflation could therefore lead to less demand for cryptocurrencies as an ‘inflation hedge’. On the other hand, a possible interest rate cut by the Federal Reserve could actually be beneficial for risky investments, including digital assets. Lower interest rates make borrowing cheaper, which could lead to more investment in the crypto market. Moreover, the prospect of economic growth could improve investor sentiment, which could also potentially stimulate demand for Bitcoin and other cryptocurrencies.

Points of attention

Despite the general decline, housing costs remain a concern. They account for about a third of the CPI and have remained stubbornly high in recent times. The slight decrease in the increase in these costs is therefore a positive sign.

It is important to note that one month of lower inflation does not necessarily make a trend. The Federal Reserve will likely want to see more evidence of a sustained decline before cutting rates.

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