The Consumer Price Index (CPI), the key metric used to estimate inflation in the United States, has just been released. The fate of the markets hinges on US inflation and today’s Consumer Price Index (CPI) data. In this article, we will explore what CPI is and why it matters, as well as analyse the latest figures.
What is the CPI?
Technically, the Consumer Price Index (CPI) is a fundamental economic indicator that measures changes in the prices of goods and services we buy daily. In other words, the CPI tells us how much the cost of living has changed over time.
The CPI is calculated by gathering price data for a representative “basket” of goods and services typically purchased by consumers. This basket includes a variety of products, such as food, clothing, housing, transportation, education, healthcare, and other common expenditures. The US Bureau of Labor Statistics (BLS) collects this data monthly across 75 urban areas and compares it with previous periods.
Why is the CPI important?
The CPI is used to measure inflation, or how much the cost of living is increasing. If the CPI rises, it indicates that prices are increasing, meaning we need to spend more to maintain the same standard of living.
Bitcoin and the CPI: what’s the link?
Recently, the correlation between Bitcoin’s price and the inflation rate has been declining, largely because inflation has approached the 2% target and the Federal Reserve (FED) began cutting interest rates in September. Despite this, Bitcoin continues to demonstrate its value as a safe-haven asset and a hedge against inflation.
This connection became particularly evident after the approval of spot Bitcoin ETFs, as their recent performance highlights. These financial instruments have increasingly attracted attention to Bitcoin.
The last time this happened
When Bitcoin’s price plummeted due to turmoil in traditional financial markets, many investors sought refuge in more stable assets, leading to heightened BTC volatility. In such contexts, the Consumer Price Index becomes essential for understanding inflation trends and making informed decisions. A stable or declining CPI could foster a less uncertain economic climate, helping to reduce Bitcoin and cryptocurrency volatility.
Analysis of December 2024 CPI data
On 11 December 2024, the BLS released November 2024 CPI data. According to the report, the CPI rose by 2.7% year-on-year, aligning with expectations.
What do these numbers mean?
The 2.7% increase in the CPI indicates that inflation has slightly risen compared to the previous month. However, as this aligns with BLS forecasts, the rise is not currently a cause for concern. It remains to be seen whether the FED will pause its interest rate cuts during next week’s FOMC meeting (18 December) or proceed as planned.
Historical CPI data in 2024
Here’s a summary of CPI figures for recent months in 2024:
- November 2024: 2.7% (expected: 2.7%)
- October 2024: 2.6% (expected: 2.6%)
- September 2024: 2.4% (expected: 2.3%)
- August 2024: 2.5% (expected: 2.5%)
- July 2024: 2.9% (expected: 3.0%)
- June 2024: 3.0% (expected: 3.1%)
- May 2024: 3.3% (expected: 3.4%)
- April 2024: 3.4% (expected: 3.4%)
- March 2024: 3.5% (expected: 3.4%)
The data shows that inflation consistently declined throughout 2024, only to rise slightly in the last month. Could Donald Trump’s upcoming inauguration as President in January 2025 shake things up further?
Stay tuned for updates and market insights!