Bitcoin price outlook: How will inflation data impact the crypto market?

Today’s Cryptocurrency analysis on behalf of Rania Gule Market Analyst at XS.com

Bitcoin prices, currently trading near $25,900, have witnessed a significant surge in the cryptocurrency market ahead of the release of the U.S. Consumer Price Index (CPI) for August. The impact of this data on Bitcoin and other cryptocurrencies will likely depend on the overall market volatility after the data is released today. This means that if there are significant surprises in inflation figures, whether higher or lower, the digital cryptocurrency market, led by Bitcoin’s price, will be greatly affected.

The U.S. Consumer Price Index is scheduled for release today, Wednesday, September 13. Inflation in the United States is expected to rise for the second consecutive time, with the main Consumer Price Index for August expected to increase to 3.6% from 3.2% in July on an annual basis.

On the other hand, the core Consumer Price Index is likely to decline, with the possibility of it falling to 4.3% from 4.7% in July, on an annual basis. The reason for the difference in expectations is the sharp increase in oil prices, which are not included in the core index, at a time when other price pressures in the United States are declining.

In my view, we will see a stronger increase in core inflation in August after two consecutive monthly increases of 0.16%, with the core Consumer Price Index rising by 0.3% every month. The core Consumer Price Index is expected to register another 0.2% increase, albeit retaining stronger gains compared to June and July.

I also expect further slowing in home prices, coinciding with increased chances of a 0.6% rise in the main Consumer Price Index, the largest increase since June 2022. This is likely due to rising gas and oil prices and increased energy component costs, which will negatively impact dollar-denominated assets and consequently lead to a medium to long-term decline in the price of Bitcoin and cryptocurrencies.

The Consumer Price Index will impact the decision-making process at the Federal Reserve ahead of next week’s Federal Open Market Committee (FOMC) meeting. If the core Consumer Price Index comes in stronger than expected, the Fed may raise interest rates more aggressively, which would be a significant surprise to the markets, especially since interest rates are expected to remain unchanged in September.

Therefore, I believe that the price of Bitcoin will only be significantly affected by the release of the Consumer Price Index data if the core Consumer Price Index surprises the markets by rising instead of falling as expected or if there is an unexpectedly large increase in the main Consumer Price Index.

The sudden increase in core inflation could potentially erase the gains made by Bitcoin and cryptocurrencies in the past 24 hours, during which Bitcoin’s price exceeded $26,000. Most cryptocurrencies have also seen their values rise, pushing the market capitalization to over a trillion dollars. However, all of this could be reversed if the core Consumer Price Index surprises the markets with an unexpected significant increase.