Inflation tends to increase again after a year of decline
The US CPI rose 0.6% in August, its biggest monthly gain of 2023. On a year-over-year basis, CPI inflation rose to 3.7% versus forecasts for 3.6% and from 3.2% a month earlier. The Core CPI (excluding food and energy) increased by 0.3%. The main reason CPI rose sharply in August may be because energy prices surged by 5.6% and gasoline prices surged by 10.6%.
The line chart from CNBC shows that CPI’s sharp decline is no longer there. It is possible that CPI is entering a sideway or reversal phase. Although the Core CPI has not really increased significantly, the speed has slowed down, making the 2% inflation target impossible to achieve soon.
Meanwhile, the FED chairman’s statements at the Jackson Hole conference also left open the possibility of interest rates continuing to increase. The scenario of raising interest rates is very likely to happen, however, when interest rates will increase is difficult to predict, it will not necessarily happen in September.
FedWatch Tool statistics show that 96% of survey results predict that the FED will maintain interest rates in the range of 5.25% – 5.50% at its meeting on September 21.
Impacts of CPI on Bitcoin price in near future
Right after the August CPI was announced, Bitcoin did not have strong fluctuations. Unlike the community’s predictions, Bitcoin surged to $26,500, almost the highest level since early September.
Bitcoin tends to rise before CPI is announced
@tonythebullBTC points to an interesting comparison of price fluctuations of Bitcoin, oil price, and CPI. According to @tonythebullBTC, Bitcoin tends to rise before the CPI is announced. This opinion implies that Bitcoin will continue to increase strongly in the near future.
The connection between Bitcoin price and the Fed’s balance sheet
@PositiveCrypto and LookintoBitcoin data shows a strong correlation between FED balance sheet movements and Bitcoin price. Throughout its history over the past 10 years, Bitcoin’s price has been closely linked to expansion and shrink of the FED balance sheet. The FED balance sheet shrinking in the past two years is also the downtrend period of Bitcoin. Over the past two years, the FED balance sheet has decreased by more than $1,000 billion. And now, the downward trend can still continue as inflation has not really met the requirements.
Therefore, Bitcoin may not be able to end its downtrend anytime soon. However, @PositiveCrypto shows signs of a recent slowdown in balance sheet shrink that may bring some hope to Bitcoin.