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CPI Data for July: Fed Under Pressure as Bitcoin Stays Resilient

Published August 11, 2023 11:56 AM
Nikola Lazic
Published August 11, 2023 11:56 AM

Key Takeaways

  • Inflation is lower then expected but FED is far from winning
  • Critics point out that this number will rise
  • Bitcoin still maintains around $30,000

The July Consumer Price Index (CPI) report has shown that the inflation rate is slightly lower than initially expected. It rose by 0.2% in July and a year-over-year (YoY) rate of just 3.3, with core inflation at 4.7%. 

Important to note is the distinction between inflation and core inflation. The inflation rate is measured by the price changes in goods and services (CPI), while core inflation is measured by the CPI and the core Personal Consumption Expenditures (PCE) index. Core inflation excludes the food and energy sectors because of their high volatility. 

Having said that, many are seeing this news as a positive sign – FED winning its battle against inflation, while others like Peter Schiff see it as a spin on the numbers. 

The July inflation can be attributed to the rise of shelter costs by 0.4% and by 7.7% from a last year. Real wages adjusted for inflation increased by 0.3% on the month and were up 1.1% from a year ago.

Per Bureau of Labor Statistics data, Even though the inflation has come back down significantly from its mid-2022 highs of 9%, it is still above the desired 2% mark, which FED aims at. 

CPI decreasing

Chief economist at Moody’s Analytics said for CNBC: “We can feel confident that inflation is moving in the right direction, but I don’t think we should be overly confident.”

Peter Schiff mentioned the price of Oil, which rose by 16% in July, while the cost of regular unleaded gas  is at $3.82 on average, an increase of 8% since last July.

Crude oil price on the rise

Tied to what we have stated in the beginning – the distinction between inflation and core inflation, we can see why others aren’t receiving these numbers as positive overall. 

Is This Positive for Crypto? 

.Even though inflation is decreasing on paper, the FED isn’t winning just yet. The pressure on the economy persists, and institutional investors are seeking alternatives.

Bitcoin’s inflation rate is currently at about 1.8%, and next year will be the halving when this is going to decrease by twofold, which may lead to an influx of capital to Bitcoin and crypto in general. 

Bitcoin stays resilient as the price has been hovering around $30,000 since June 22. Prior to that, the price was in an uptrend since November 21, 2022, recovering by 102% measured to its highest point on July 14, at $31,625. 

In some of our previous analyses, we have pointed out some of our macro outlooks that still stand. Most notably, a potential $135,000 target for the next year. 

That isn’t expected in a straight line. On the contrary, in the near term, we expect to see the first major bull market correction that can lead the price back to $22,000 before it starts its decisive uptrend. 

higher high expected

 

In the past Bitcoin was closely tied to the traditional market, namely NASDAQ, S&P500, and DJI. That is no longer the case, according to data from the crypto derivatives analytics firm Block Scholes  back in July. 

Bitcoin lowest in correlation since 2021

The 90-day rolling correlation between Bitcoin and traditional markets is near 0, which is the lowest it has been since 2021. This low correlation means that even with potential turmoil in traditional markets, the price of Bitcoin wouldn’t suffer the same faith and could instead be viewed as a safe haven for institutional investors. 

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