US CPI data above expectations at 6.4% – Is the crypto market about to turn bearish?

The United States Consumer Price Index (CPI) was expected to dive further than it did for the month of January 2023, and crypto markets have reacted with a limited sell-off reaction.

The Federal Reserve (Fed) has been watching the data closely, stressing that they will have to reduce the services price increase in order to return to their preferred inflation measure – the Personal Consumption Expenditures (PCE) Price Index – target of 2%.

US annual CPI comes in at 6.4%, inflation decelerates slowly

The US Bureau of Labor Statistics (BLS) released the CPI for the month of January, with the year-over-year figure coming in at 6.4%. This marked a bare difference from the inflation rate noted in December 2022, when the CPI came in at 6.5%.

Analysts and investors were all forecasting the inflation rate to decline to 6.2%, with the core CPI expected to fall to 5.5% from December’s 5.7%. The core CPI on a yearly basis came out lower than the previous month coming in at 5.6%.

US CPI data

Federal Reserve Chair Jerome Powell recently stated that expectations of inflation going away soon might not happen anytime soon. According to Powell, the markets will have to bear a high inflation rate for a while longer. Powell said,

“There has been an expectation that it will go away quickly and painlessly — and I don’t think that’s at all guaranteed. The base case for me is that it will take some time, and we’ll have to do more rate increases, and then we’ll have to look around and see whether we’ve done enough.”

Commenting on the change in CPI figures, the Bureau of Labor Statistics, in their press release, stated,

“The all items index increased 6.4 percent for the 12 months ending January; this was the smallest 12-month increase since the period ending October 2021. The all items less food and energy index rose 5.6 percent over the last 12 months, its smallest 12-month increase since December 2021. The energy index increased 8.7 percent for the 12 months ending January, and the food index increased 10.1 percent over the last year.”

The FXStreet team noted that the CPI numbers caused the US Dollar (USD) to tank as a result of "heavy selling pressure," but also added that these "losses remain limited for the time being."

Yohay Elam, another analyst at FXStreet, added, 

"The Fed is still set to raise rates in March, and the labor market is on fire. Nevertheless, even if employment is steaming hot, inflation is cooling. That is good news for the US economy, the world and stock markets. For the US Dollar, it means ongoing pressure."

Bitcoin price could drop back to $20,000

Bitcoin price was expected to decline following the release of the CPI data. It did so but with a minimal impact. At the time of writing, the king coin hovered around $21,700, noting a minimal 0.5% drop since the release of the event. This can be attributed to the inflation rate YoY pick up having already been mostly priced in by the markets ahead of the event. 

BTC/USD 1-day chart

BTC could have rallied to $24,000 to $25,000 potentially, had the CPI number indicated more disinflation. But since the actual numbers were very similar to expectations, BTC could continue with its retracement and re-test $20,000. If the bears are able to take over the market, Bitcoin could also tag $19,000.

Other altcoins, including Ethereum, reacted similarly, with minor changes observed in their price. ETH slipped by 0.48% in the last hour to trade at $1,507, with XRP declining by 0.44% as well, changing hands at $0.3688.

Similarly, other top altcoins, including Dogecoin and MATIC, did not fall by much. Only Cardano and Solana, at the time of writing, slipped by more than 1%, trading at $0.3589 and $21.16, respectively.