The Consumer Price Index (CPI) in the United States rose by 0.4% in August, following a 0.1% increase in July. After the inflation figures were released, Bitcoin experienced a sharp decline to $76,000 but managed to recover fully within the next half hour.
According to the Bureau of Labor Statistics (BLS), the annual inflation rate remained steady at 3.4%. The core CPI, which excludes food and energy prices, increased by 0.3% month-over-month, surpassing the expected 0.2%. Year-over-year, this figure slowed slightly from 2.5% to 2.4%.
Before the report was made public, Bitcoin was trading above $77,000 on the Binance exchange. Following the release, its price plummeted to $76,037. As of this writing, Bitcoin had recovered and was trading above $78,700.
15-minute chart of BTC/USDT on Binance. Source: TradingView.During the same period, Ethereum surged from a daily low of approximately $2,432 to a peak of $2,623, with its current price sitting at $2,603.
15-minute chart of ETH/USDT on Binance. Source: TradingView.Following the lead of the major cryptocurrencies, all top-10 assets by market capitalization moved into positive territory. According to CoinMarketCap, the largest gains in the past hour were seen in ZEC (+5.47%) and XRP (+4.56%).
Source: CoinMarketCap.Factors Behind Inflation Increase
The primary driver of rising inflation was energy prices: gasoline prices rose by 3.9% in August, accounting for over one-third of the total monthly CPI increase.
Source: BLS.The energy component of the CPI increased by 2.1% month-over-month and 16.3% year-over-year. Housing costs rose by 0.3%, while food prices went up by 0.1%. Increases were also noted in the costs of hotels, airline tickets, and both new and used vehicles.
Conversely, prices for medical services and auto insurance saw declines. While the annual rate of core inflation continued to decelerate, stronger monthly figures heightened expectations for a tighter monetary policy from the Federal Reserve.
Market Adjusts Rate Hike Expectations
Following the CPI release, the likelihood of a 25 basis point rate hike by the Federal Reserve at its meeting on September 16 rose to 85.6%, up from 68% prior to the data release, as reported by Reuters.
Source: CME FedWatch.The bond market response was mixed. The yield on two-year Treasury notes, sensitive to rate expectations, rose to 4.59%, while the yield on ten-year notes fell to 4.92% after reaching an intraday high of 4.98%. The Nasdaq and S&P 500 both gained 0.8%.
It is worth noting that on August 28, Bitcoin had dipped below $78,000 following remarks from Federal Reserve Chair Kevin Warsh.