Crypto Sinks Lower Despite News of Falling Inflation Rates

According to data released today by the U.S. Bureau of Labor Statistics, April’s year-on-year consumer price index has fallen to 8.3%, 20 basis points lower than the 41-year-high inflation rate the economy saw in March.

April CPI Prints at 8.3%

The CPI data for April indicates that U.S. inflation may have already reached its peak.

According to the U.S. Bureau of Labor Statistics’ latest inflation data, the consumer price index increased by 0.3% on the month in April, placing the annualized inflation rate in the U.S. at 8.3%, or 20 basis points lower than the March CPI. Shelter, food, and airplane fairs indexes saw the highest increases in price, while the energy index has fallen 6.1 % over the month, following an 11% increase in March. 

Today’s data from the Bureau fell largely in line with economists’ expectations, who estimated consumer prices to rise 0.2% on the month and 8.1% over the year. Despite the inflation rates still dangling at four-decade highs, the data for April resembles a significant improvement over what the economy was seeing so far. For comparison, the CPI print for March showed inflation rising 1.2% on the month and hitting a 41-year-high of 8.5%.

The loosely formed consensus among economists has been that inflation had likely peaked in April and would slowly start to come down over the coming months. Market participants consider this scenario relatively bullish because it could mean that the Fed has to do less tightening to bring the CPI down to the targeted 2%. If high consumer prices can take care of the inflation (which doesn’t measure the height but the rate at which consumer prices are rising) on their own, there’s less chance that the Fed—which is already embarking on an aggressively hawkish monetary policy— will have to raise interest rates beyond 50 basis points at a time or increase the scheduled rate of its Quantitative Tightening or balance sheet unwinding program. This could mean that credit remains relatively cheap, making national and corporate debts easier to refinance and leaving more discretionary income for investments within the economy. 

However, the crypto market hasn’t reacted well to the news of falling inflation rates. The two biggest cryptocurrencies, Bitcoin and Ethereum, are trading 8.8% and 10.8% down on the day, failing to make even a slight recovery on the news. The crypto market as a whole has slumped 13.5%—a move initiated mainly by the disastrous unraveling of the Terra ecosystem. The blockchain’s native governance token LUNA and its flagship stablecoin UST have lost around $43 billion in value over the last week in a so-called “death spiral” event that saw the UST stablecoin depeg from its desired $1 target, bringing the LUNA “backing” down with it. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.