The latest US Consumer Price Index report has been much better than expected, showing that inflation is slowing, causing Bitcoin and some altcoins to rally.
The publication of the report on the Consumer Price Index (CPI) The US Department of Labor's announcement has come as a relief to many. In June, inflation hit a record high of 9,1%, making all predictions for the new figure extremely pessimistic.
However, the CPI data published by the US government show that Inflation fell to 8,5% in July, below the 8,7% predictions expected by analysts and the government itself.
Why has inflation slowed down?
The data has taken most people by surprise, including the US government itself, which was prepared to blame rising inflation on the war between Russia and Ukraine.
However, the report shows that Energy and gasoline prices fell, offsetting increases in food and housing. Gasoline and energy fell 7,7% and 4,6% respectively, while food and housing rose 1,1% and 0,5% month-on-month.
From this data, it is extrapolated that the core CPI, which is calculated by removing volatile energy and food prices, grew by 0,3% in this period.
The result is a month-on-month decrease of 60 basis points compared to the June record, the highest in the last forty years, indicating that inflation may have peaked.
Despite continuing far from the 2% target marked by the Federal Reserve, The reduction in inflation, above expectations, could mean a change of policies for the FED, moving away from extremely harsh measures and creating a “soft landing”, interest rate increases less aggressive.
In this sense, less aggressive policies also prevent a deep recession from occurring, which would cause the markets will change from negative risk to positive risk.
What effect has the slowdown in inflation had on cryptocurrencies?
Historically, this scenario has been very good for riskier assets such as stocks and cryptocurrencies.
In fact, after the news broke, both Bitcoin and Ethereum rallied, followed by many altcoins.
Bitcoin has broken through the $23.000 barrier and, at the time of writing, is trading at around $24.400, with a growth of more than 6% in the last 24 hours.
For its part, Ethereum is now trading above $1.800, having briefly surpassed 1.900 after it became known that the Goerli testnet has successfully merged with the Beacon Chain, bringing Ethereum closer to the long-awaited The Merge, which will turn the blockchain into Proof-of-Stake.
More generally, the news has caused The cryptocurrency market has a total market capitalization of $1,17 trillion, recovering part of its losses, although still far from the 3 trillion it reached in November 2021.
Is the market ready for a rebound?
Although the CPI data is good and, despite the fact that some analysts such as those at JP Morgan suggest that the cryptocurrency market has found new ground, Significant risks remain for a prolonged bear market to occur.
The energy crisis in Europe continues and is likely to worsen during the winter due to gas cuts in Russia. Energy prices could be a problem for some countries and at the same time could cause inflation to rise, leading to a fall in prices. European Central Bank to raise interest rates, causing a recession.
So, while the US data is good, experts and analysts suggest that caution is warranted.
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