Inflation, Tracked by Bitcoiners, Keeps Accelerating, and It Hasn't Even Peaked

U.S. inflation probably accelerated last month to a new four-decade high, showing the intensity of upward pressures on consumer prices even before Russia's war on Ukraine sent commodity prices from oil to wheat soaring, according to a Bloomberg report.

The consumer price index (CPI), due out from the Labor Department's Bureau of Labor Statistics at 8:30 a.m. ET on Thursday, is expected to show that the inflation rate was 0.8% in February, or 8% over the past 12 months. That would be the highest level since 1982, and faster than the 0.6% monthly clip reported for January.

Bitcoin (BTC) traders are likely to monitor the index, since the largest cryptocurrency is seen by some investors as a hedge against inflation. There's also a view that bitcoin's price sometimes reacts to Federal Reserve decisions on monetary policy, and a key mandate for the U.S. central bank is to assure price stability.

Many analysts are still bullish on bitcoin, but the cryptocurrency isn’t performing as the hedge against inflation that they expected. Bitcoin is down 8% since the start of 2022 after reaching its all-time high of $69,000 in November 2021.

“Bitcoin and crypto in general will remain tied to the news out of Ukraine and continue to trade broadly in a risk off/on fashion,” said Richard Usher, head of other-the-counter trading at BCB Group. “We feel that the CPI report on Thursday will prove to be a side event to the Russia/Ukraine situation.”

Gas prices and the Fed

Federal Reserve Chair Jerome Powell said last week he supported a 0.25 percentage point increase in short-term interest rates, which would be the first hike since 2018. The Fed has become more dovish in recent weeks as the Russia-Ukraine conflict drags on and adds concern about global oil supplies and price pressures.

Bitcoin has underperformed gold in 2022, as Russia's invasion of Ukraine sent many investors in traditional markets searching for the yellow metal long seen as a "safe haven" asset.

The cryptocurrency was changing hands at $41,900 at press time, down 8.9% on the year.

Richard F. Moody, senior vice president and chief economist at Regions Financial, wrote in a report that he expects inflation will continue to rise in coming months.

“We and most others had thought we’d see inflation peak with either the February or March data,” Moody said.

With oil prices clearing $120 per barrel due to the cutoff of Russian supplies, Moody expects “further pass-through to retail gasoline prices in the weeks ahead.”

The national average price at the pump for regular unleaded gasoline has soared to a record $4.252 per gallon, according to AAA, the motorist association. That's up from $2.796 a year ago.

Core consumer prices, which exclude volatile food and energy metrics, are expected to have risen 0.5% in February, according to Douglas Porter, chief economist at BMO Capital Markets. Porter said he’s watching to see if inflation is seeping into other categories like services which aren’t driven by supply chain constraints.