US Inflation Data This Week: How Does It Affect Crypto Market?

The crypto market is predicted to react to the announcement of US inflation. (Photo; Doc. Coincu)

JAKARTA - This week, investors in the crypto market will pay attention to the release of US inflation data for January, which is scheduled for Tuesday, February 12, 2024. This inflationary data is important because it will show how far the US central bank (The Fed) is in achieving its target of stabilizing prices. Inflation data will also affect market expectations related to the Fed's monetary policy, including the possibility of cutting the benchmark interest rate.

According to a FactSet survey, US CPI is expected to rise 0.2% on a monthly basis (month-to-month/mtm) in January, the same as the increase in December. Meanwhile, core CPI, which excludes volatile food and energy prices, is expected to rise 0.3% mtm, also equal to the previous month's rise. Annually (year-on-year/yoy), US CPI is expected to rise 2.9% in January, slightly lower than 3.4% in December. Meanwhile, core CPI is expected to rise 3.7% year-on-year (YoY), down from 3.9% in December.

Katie Nixon, Head of Investment at the Northern Trust Wealth Management, said CPI inflation in January would "continue to show the right trend", according to a Morning Star report. However, he added that CPI inflation would slow down compared to PCE inflation, a measure of inflation preferred by the Fed.

In the crypto market, the uncertainty surrounding inflation and monetary policy often prompts investors to look for alternative assets such as Bitcoin (BTC) and other cryptocurrencies. Bitcoin is considered a hedge against inflation, as the amount is limited and cannot be printed carelessly. If US inflation is higher than expected, then demand for Bitcoin and other cryptocurrencies could increase.

Producer Price Index (PPI)

As CPI and core CPI in January are expected to rise, PPI is also likely to rise, as they are interrelated. PPI measures changes in the prices of goods and services from the perspective of producers or sellers. In December 2023, US PPI fell 0.1% on a mtm basis, despite concerns about rising inflation. yoy, US PPI rose 1%, indicating efforts to control inflation.

If the January PPI follows the same trend, then it could be a catalyst to reduce further inflationary pressures. The decline in PPI could help reduce the increase in CPI. This could reduce incentives to switch to volatile and risky assets such as Bitcoin and other cryptocurrencies.

Crypto Market Reaction

Crypto markets tend to be sensitive to US inflation data, as the US is one of the countries with great influence in the world. US inflation data could trigger Bitcoin price volatility and other cryptocurrencies, depending on the results.

If US inflation is lower than expected, then the crypto market could increase, as this indicates that the Fed will be slower in raising interest rates. Low interest rates will make interest rates such as bonds less attractive, and encourage investors to look for assets with higher potential profits, such as cryptocurrencies.

On the other hand, if US inflation is higher than expected, then the crypto market could decline, as this indicates that the Fed will be faster at raising interest rates. High interest rates will make interest rates such as bonds more attractive, and encourage investors to sell high-risk assets, such as cryptocurrencies.

However, the reaction of the crypto market to US inflation data can also be influenced by other factors, such as market sentiment, news, and technological developments. Therefore, crypto investors must remain vigilant and follow market developments constantly.