US monthly headline inflation is 0.5%, up from 0.1% in December 2022, while core CPI was 0.1% higher than 0.3% in December 2022. Crypto markets and stocks were mostly flat, having previously absorbed disinflation rhetoric from Jerome Powell.
The monthly headline CPI for January 2023 increased 0.5%, while the core CPI, excluding gas and energy prices, increased 0.41%, compared to 0.3% in December 2022.
The so-called re-inflation seen in the core CPI has some investors worried that equity markets could turn bearish, even as cryptocurrencies rally.
Higher Core CPI Keeps Crypto Flat, Beware of Re-inflation
After the CPI news broke, macro commentator @tedtalksmacro suggested that rising core inflation will push markets lower.
Federal Reserve Chairman Jerome Powell said that because housing creates a floor for headline inflation, and the Federal Reserve prefers to look at core CPI to determine the effects of rising interest rates.
Stock markets were mostly flat after the news, with Dow Jones futures down 5 points, while S&P 500 futures were down 0.12%. Treasury yields fell 2-3 basis points before rising, and then falling lower than before the CPI data was released.
Housing costs, which drove the overall increases, rose 0.7% in January 2023 and 7.9% from a year earlier. Medical expenses fell 0.7%, while air fares fell 2.1%.
The so-called general consumer price index offers granular information on the average price change of a basket of goods and services. Core CPI, on the other hand, excludes food, energy and housing costs.
After the announcement, Bitcoin fell to $21,600 but then rose to $22,000. ETH also fell to around $1,501 but recovered to $1,547. ADA rose 2% to about 38 cents after dipping to less than 35 cents, while SOL fell to $21.11 before rising to $21.96.
Markets Rally on “Disinflation” Rhetoric at Last FOMC Meeting
The strength of the US economy, evidenced by the highest employment rate in more than a decade, as well as Fed Chairman Powell’s admission that the “disinflationary process” had begun in his speech to the Federal Committee on Open Markets, has driven markets mostly positive in recent weeks despite the risks of a mild recession in 2023.
“Inflation is declining, but the path to lower inflation is likely not to be easy,” said Jeffery Roach of LPL Financial.
At the same time, Powell warned that it would be “very premature to declare victory or to think that we actually got it done.”
Analysts expect the Fed to raise interest rates by 25 basis points at its next Open Markets Committee meeting in late March 2023, taking the fed funds rate above 5.1%.
Powell anticipates that interest rates will continue to rise through the end of 2023, unless the bank sees inflation come down faster.
By Audy Castaneda
