Apr 22, 2024

US Inflation Skyrockets to 3.5% – What Are the Effects on the Crypto Market?

  • Over the last few years, fighting inflation has become the major objective of the US Federal Reserve. They are actively trying to reach the target of keeping the inflation rate below 2%, but this goal is yet to be achieved.
  • It even gets worse with the recent release of March CPI data, with the inflation rate climbing to 3.5%.

March Consumer Price Index (CPI) data was released recently, and it exceeded the expectations of investors. The recent data highlights March as the second straight month of increasing inflation. Most importantly, it means the potential for an interest rate cut from the US Federal Reserve is drastically reduced.

United States Inflation Rate Exceeds Expectations, Reaches 3.5%

The core CPI, which excludes volatile food and energy prices, is above estimates. Data shows it appreciated 0.4% from February while rising 3.8% from a year ago. This is quite different from speculations of 0.3% and 3.7%, respectively.

“The index for shelter rose in March, as did the index for gasoline. Combined, these two indexes contributed over half of the monthly increase in the index for all items. The energy index rose 1.1 percent over the month. The food index rose 0.1 percent in March. The food at home index was unchanged, while the food away from home index rose 0.3 percent over the month,” the press release from the Bureau of Labor Statistics read.

Now the CPI data is public, all eyes will be on the remarks of Fed Chair Jerome Powell. Previously, US citizens were told to expect three rate cuts throughout 2024. However, the chances of this happening are becoming slim, judging from the recent inflation data.

Bitcoin Price Falls – Impact of the Recent Inflation Increase on the Crypto Market

Immediately after the inflation rate for March was revealed to the public, Bitcoin’s price dipped to less than $70k, almost coming close to $68k. However, at press time, the apex cryptocurrency made a rebound, coming back above the $70k level. Subsequently, this shows that Bitcoin wasn’t affected by the recent inflation data as traders had expected.

Nevertheless, the consumer price index is a big metric that affects the trading dynamics of the crypto industry. The relationship between inflation rate data and the crypto industry is not straightforward. However, it still has certain effects in the crypto market. Sometimes, when investors notice the inflation rate is getting high, they usually move their assets, such as bonds and stocks, and convert them to cryptocurrencies.

In some cases, they can move their money out from cryptocurrencies to bonds and stocks if CPI data shows the inflation rate is falling. Moreover, the relationship between crypto and CPI data depends on factors such as investor sentiment, regulation, and news.

At press time, Bitcoin remains above $70k, Ethereum has increased to more than $3,500, and Binance Coin is having a good season after appreciating to over $600. Furthermore, the overall crypto market is experiencing bullish sentiments, with the market cap increasing by 2% to stand at $2.64 trillion.

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