Key US Inflation Gauge Slips to Slowest Pace in 6 Months, Bitcoin Rises

The U.S. Labor Department said consumer prices rose 0.3% last month, falling short of the 0.4% increase expected by economists.

The consumer price index rose 5.3% over the past 12 months, below economists’ average prediction of a 5.4% increase. Core CPI, which excludes food and energy prices, rose 0.1% last month, lower than economists’ expectation of 0.3% growth and the slowest increase the U.S. has seen in six months.

Bitcoin’s price rose $690, or 1.5%, to $46,501 since the CPI report was published at 8:30 a.m. ET (12:30 UTC).

The soft inflation report may encourage the U.S. central bank to keep its stimulus program, known as “quantitative easing,” or QE, longer than expected. Many cryptocurrency investors speculate that QE could weaken the dollar, pushing up the value of bitcoin, which has a capped supply. Bitcoin is also still seen on Wall Street as a speculative asset, and the bet is that more investors will be forced to seek such investments as QE suppresses returns in traditional bond markets.

While August’s lower-than-expected numbers may be regarded as a positive sign for transitory inflation, they could also be a sign of increasing macroeconomic uncertainty as COVID-19 variants fill hospitals even in highly vaccinated countries. Airline fares fell dramatically, and decreasing hotel prices weighed on the shelter index.

”At the margin, the recent data will dampen some of the more excitable inflation forecasts in the markets and at the Fed,” Ian Shepherdson, chief economist for the forecasting firm Pantheon, wrote to clients in an email.

On a month-over-month basis:

• Used-vehicles prices declined by 1.5%, continuing July’s trend of supply-side inflation wearing off, when prices for used autos increased by only 0.2%.
• Airline fares declined sharply by 9.1%, compared with July’s decrease of 0.1%.
• Shelter rose 0.2%, compared with a 0.4% increase in July.
• The food index increased by 3.7%, compared with July’s 0.7% increase.
• The energy index increased by 2% with the gasoline index rising by 2.8%.