US Producer Prices Cool Off, But Core Inflation Holds: What To Expect For Crypto And Interest Rates?
US producer price inflation accelerated less than expected in July. What does this mean for crypto industry and interest rates? l Credit: Michael M. Santiago/Getty Images
Key Takeaways
- US producer prices rose slower than expected in July.
- The slower PPI growth could influence the cryptocurrency market and the Federal Reserve.
- Another particularly monitored data – US consumer price inflation – will be released on Aug. 14.
In a welcome respite from soaring inflation, US producer prices slowed their pace in July, sparking hopes of easing inflationary pressures.
According to the latest data from the Bureau of Labor Statistics, the economy may be entering a cooling phase, which could have far-reaching implications for monetary policy, currency markets, and the valuation of cryptocurrencies.
As investors and policymakers await the next key indicator, all attention turns to the upcoming release of US consumer price inflation figures on Aug. 14, which will provide crucial insight into the inflationary landscape.
US PPI Inflation Cooler Than Estimated
According to data released on Tuesday, Aug. 13, 2024, US producer prices rose less than expected in July, with the Bureau of Labor Statistics reporting a 2.2% year-over-year increase. This marks a decline from the 2.6% annual gain in June and 2.4% in May.
Market expectations, as cited by FXStreet , had anticipated a 2.3% annual rise. Month-over-month, producer prices increased by 0.1% in July, aligning with market expectations. This follows a 0.2% monthly increase in June, after no change in May.
Core PPI, which excludes volatile food and energy prices, remained flat in July compared to the previous month, contrary to the expected 0.1% rise. Annually, core PPI rose 2.4%, below the anticipated increase of 2.7%.
Following the release of this data, the dollar dipped slightly, with the pound rising to $1.2809 from $1.2783 just before the announcement.
Impact On Crypto And Rates
Rising producer prices often foreshadow increased consumer costs. As inflation expectations mount, investors may seek assets to protect their purchasing power. Historically, gold has served as a traditional hedge against inflation, and cryptocurrencies like Bitcoin have emerged as potential alternatives.
The increase in producer prices in July may be a good driver for crypto after the tumble across all financial markets on Aug. 5. In fact, the perception of Bitcoin as a store of value can drive increased demand during inflationary periods, potentially contributing to price appreciation.
As for the impact of PPI on interest rates, while the muted 0.1% month-over-month increase in final demand PPI and unchanged core PPI for July may appear positive, it’s important to note that underlying inflationary pressures could persist. Nevertheless, these figures align with the Fed’s sub-2% annualized core PCE inflation target.
The Fed has maintained a consistent and composed stance amid recent market volatility. Today’s remarks from Bostic are expected to reinforce this message. The central bank’s disciplined approach, evident in the unified messaging from both hawks and doves, suggests a steady course. While Powell’s Jackson Hole speech remains crucial, analysts anticipate adherence to the current Fed narrative.
What To Expect From US Inflation?
Tomorrow’s CPI release will be closely watched. BBH analysts anticipate a steady headline inflation rate of 3.0% year-over-year and a slight decline in core inflation to 3.2%. While further disinflation would bolster the case for a Fed rate cut, persistent stickiness in super core inflation suggests a cautious approach. The Cleveland Fed’s Nowcast model aligns with these expectations, forecasting a gradual deceleration in inflation.
Luca Santos, currency analyst at ACY Securities, highlights the significance of the upcoming CPI data, suggesting that a decline in core inflation could confirm the Fed’s progress in taming price pressures.
“The potential for disinflation raises the possibility of the Fed adopting a more accommodative stance sooner rather than later, especially if inflation falls below the Fed’s target range,” said Santos.
However, Santos cautions that the timing and magnitude of potential rate cuts pose challenges. An overly aggressive easing could reignite inflation, while a delayed response risks a deeper economic slowdown.
The dollar’s divergent performance against safe-haven and risk-oriented currencies reflects the complex interplay of global risk sentiment and investor preferences. This dynamic creates both opportunities and challenges for currency traders.
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