US CPI Data Shows A Slowdown In Inflation! Here’s How The Crypto Market Is Going To React

In recent days, anticipation has been building in the crypto market as investors eagerly awaited the release of crucial Consumer Price Index (CPI) data to determine the future trajectory of major cryptocurrency valuations. That suspense has now come to an end, as the Bureau of Labor Statistics unveiled the March CPI figures today, sparking a frenzy of trading activity across the digital currency landscape. 

US Inflation Decreased More Than Anticipated In March

Today, the Bureau of Labor Statistics unveiled the latest US Consumer Price Index (CPI) figures for March, revealing a 5% increase in annual inflation and a modest 0.1% month-on-month price rise. The all-items index, which experienced its smallest 12-month increase since May 2021, climbed 5.0% in the year ending March. Meanwhile, the all-items index, excluding food and energy, saw a 5.6% increase over the past year.

The energy index dipped 6.4% for the 12 months ending March, while the food index surged 8.5% over the same period. These latest inflation figures indicate a more significant slowdown than anticipated, sparking hope that the Federal Reserve’s ongoing monetary tightening measures may soon reach their conclusion.

The US Federal Reserve’s battle against inflation appears to be gaining traction, as recent data reveals a steady decline in the annual inflation rate. Following eight consecutive months of decreases, the rate fell from 6.4% in January to 6% in February 2023. Although this marks a significant drop from its decade-high peak of 9.1%, inflation remains considerably above the central bank’s target rate of 2%.

According to the CME FedWatch Tool, the Federal Open Market Committee (FOMC) might uphold the 25-basis points rate increase during their meeting scheduled for May 2-3, 2023.

Crypto Market To Continue Volatility

In the wake of the surprisingly subdued inflation figures for March 2023, US stock futures experienced an uptick. The cryptocurrency market, on the other hand, demonstrated a muted initial reaction before eventually registering a modest 1.2% increase. 

Currently, Bitcoin’s value hovers around $30,189, having surpassed the significant $30,000 threshold on Tuesday for the first time in nearly ten months. Prior to the release of the critical March inflation data, the crypto market saw limited volatility as traders eagerly awaited the new macro information. 

In this scenario, investors who sought refuge in cryptocurrencies during periods of high inflation might shift their focus back to traditional assets, such as stocks and bonds, as they regain confidence in the strength of the economy. Consequently, this could result in reduced demand for cryptocurrencies, leading to downward pressure on prices.

However, it is also possible that the continued higher-than-target inflation rate could maintain the appeal of cryptocurrencies as a hedge against inflation. Investors might still consider digital assets a viable alternative to traditional investments, especially if they expect the central bank’s efforts to be insufficient or slow to take effect.