Bitcoin Sinks After US CPI Report Shows Inflation Hotter Than Expected

U.S. consumer prices in September slowed from the prior month, the Labor Department reported Thursday, but the inflation rate was still faster than what economists had predicted.

Bitcoin (BTC) tumbled nearly 3% in the minutes after the report to its lowest level since Sept. 21. As of press time, the largest cryptocurrency by market value was changing hands at around $18,400. Crypto traders track monthly inflation figures closely, because the Federal Reserve’s efforts to temper soaring inflation have pushed down prices for financial assets seen as risky, from stocks to bitcoin.

Update: Bitcoin Rebounds to Over $19K After Plunge Triggered by Hot Inflation Report

The Consumer Price Index report – the most widely watched gauge to track inflationary pressure in the U.S. – rose 8.2% in September from the same month a year ago, slightly higher than the 8.1% forecasted by economists. The index rose 0.4% from August.

The "core" CPI, which strips out volatile energy and food prices and is more closely watched by investors and policymakers because it’s seen as a more steady indicator of underlying price pressures, rose 0.6%, the same pace as it rose in August, well exceeding expectations. The core CPI rose 6.6% from a year ago to its highest level in four decades.

Inflation Whac-A-Mole

When some prices fall, others rise. While the price of gas, which was the main driver for high inflation in recent months, cooled off further, prices for other items offset price decreases and kept overall inflation at a high level.

Health insurance, for example, was up 28% year over year, which is the largest increase ever. Similarly, groceries were 13% more expensive than a year ago and rent prices surged 7.2%, the highest in four decades.

And even though gas prices slightly fell in September, economists expect energy to pick up again in coming months as to the Organization of the Petroleum Exporting Countries announced it would cut production by 2 million barrels a day, which might drive up prices again.

Investors should be attentive to “continued divergence in direction between headline and core measures as compared to prior periods,” Michael Weisz, president of Yieldstreet, said. “Core categories, such as housing costs, tend to be ‘stickier’ in terms of price movements, and can give insight into future inflation expectations.”

Central bankers have raised interest rates five times this year so far, by a total of 300 basis points, or 3 percentage points, in an effort to bring inflation down to 2%, but they have a long way to go. In a survey conducted by Bankrate, 43% of economists said they think that inflation hasn’t peaked yet and will be more significant over the next 12 to 18 months.

According to the minutes from the September meeting of the rate-setting Federal Open Market Committee, which were released on Wednesday, central bankers indicated that they expect rates to be high until prices come down sharply.

“They had raised their assessment of the path of the federal funds rate that would likely be needed to achieve the committee’s goals,” according to the document, with inflation “showing little sign so far of abating.”

Bitcoin, which has fallen dramatically this year, could stay under pressure as traders fret over the prospect of further steep interest-rate hikes by the Federal Reserve on Nov. 1-2, when the FOMC meets next.

UPDATE (Oct. 13, 2022 13:53 UTC): Adds more information about the biggest drivers behind high inflation in September.