The US consumer price index (CPI) was at 3.7 percent today, compared to expectations of 3.6 percent. That would already be an increase of 0.4 percent compared to 3.2 percent in July; But inflation was even higher than initially expected.
How can inflation suddenly rise again and what does that mean for the Bitcoin price?
How can inflation rise again?
First, it is important to understand that the consumer price index has several components. The 0.6 percent increase from July to August, which ultimately results in an annual increase of 3.7 percent, is 50 percent due to the increase in oil prices.
Price increases for housing, food, new cars, used cars, medical services and many other sectors have slowed. Only the price increases for energy, raw materials and travel have increased.
Inflation expectations for the coming years are at their lowest level in 12 months, but unfortunately have stalled near this level. That would mean that we would have to be content with higher inflation for a relatively long time.
This in turn means that we will have to deal with higher interest rates for even longer.
What this means for the Bitcoin price
For the Bitcoin price, this development means that the US Federal Reserve WANTS to keep interest rates at this elevated level for even longer. They want this because it is the only way to lower inflation, and this reduction is necessary, as today’s new data shows.
This is not good for Bitcoin and in principle we have been seeing this in the price for months. It now appears that a recession is needed to reset things and make Bitcoin rise again.
Unless there is a recession, it may take a long time for interest rates to fall again. In any case, there is currently hardly any reason for the US Federal Reserve to do this.