CPI report shows 7.1% core inflation – what does it mean for Bitcoin?

YEREVAN (CoinChapter.com) – The US Consumer Price Index (CPI) report released on Dec 13 shows core inflation rose just 0.1% from the previous month, lower than the expectations of a 0.3% monthly increase and stood at 7.1% year-over-year.

The moderate increase signifies that the runaway inflation is “beginning to loosen up.”

The chart above shows that fuel prices primarily drove the core inflation, rising 65% year-over-year, while the Utility gas service took second place with an over 15% increase. The costs for fuel-related transportation services also rose by 14%, closely followed by energy services.

The food index increased 0.5 percent in November following a 0.6-percent increase in October. The food at home index also rose 0.5 percent in November. Four of the six major grocery store food group indexes increased over the month.

further read the report.

Judging by the moderate increase, the Federal Reserve will likely adopt a more dovish approach to the interest rate hike policies compared to the expectations. Thus, the crypto market could face additional tailwinds due to its consistent positive correlation with risky assets like stocks.

However, the final decision will be announced on Dec 14.

CPI report testifies to more dovish policies ahead

Generally, Fed’s hawkish policies mean tougher borrowing terms and higher interest rates for consumers and businesses. They are designed to slow down the economy, subside consumption, and, by extension, inflation.

Conversely, a slowdown in hawkish policies means faster growth and a bullish phase for the stock market.

As CoinChapter reported in early December, Powell signaled the Fed would slow the pace of interest-rate increases in December while stressing borrowing costs will need to keep rising and remain restrictive for some time to beat inflation.

Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.

commented Powell.

Also read: Bitcoin Price Near Crucial Juncture, Can BTC Bulls Save The Day?

Bitcoin’s correlation with risk assets sets the stage for a recovery

While the geopolitical situation is far from stable and could cause more chaos for global markets, the moderate PRI increase and Fed’s dovish approach for December sent the Stocks roaring higher following the report. As a result, the stock index S&P500 (SPX) rose nearly 2%, reaching its intraday high.

If investors continue turning to the stock market to hedge their funds, Bitcoin could also enjoy a proxy rally. Additionally, the flagship crypto has been flashing possible reversal signs throughout the previous two months, solidifying bullish expectations.

Is the Crypto market primed for a proxy rally?

As CoinChapter reported earlier on Dec 13, investors ensured a considerable outflow of BTC from changes ahead of the CPI report. Generally, the outflow from exchanges means traders would rather hold on to their coins than liquidate the stash.

However, Bitcoin technicals are still conflicting. The BTC/USD daily chart showed a 5% uptick following the favorable CPI report. After the release, the bullish attempt to close the session above $17,000 will likely succeed. However, traders should be careful, as the rally might be short-lived.

In detail, there is no trading volume increase as of 14:00 GMT.

If Bitcoin bulls hope for a confident uptrend, they should put more weight behind the rally, ensuring a lasting effect. Meanwhile, the upcoming session will show if the alpha crypto is ready for a full recovery or if the current uptick is simply a bull trap.

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