Trading Economics estimates suggest that this week’s data releases will indicate a rise in inflation, posing a potential danger signal for Bitcoin and cryptocurrencies.
The cryptocurrency market has been struggling to find its footing in recent weeks, and one key factor driving this uncertainty is the relentless growth in the United States, indicating a return of inflation and a more hawkish stance from the Federal Reserve.
As the market expects the release of two of the most closely watched indicators by the Fed, namely the Producer Price Index (PPI) and the Consumer Price Index (CPI), this impact seems set to continue this week.
With inflation heating up once again, will cryptocurrency prices melt under the heat?
Is inflation intensifying?
The U.S. Producer Price Index and Consumer Price Index are set to be released on Tuesday, January 14th, and Wednesday, January 15th, respectively, with economists expecting the data to show a rise in inflation once again.
The PPI measures price changes from the seller’s perspective, while the CPI measures price changes from the consumer’s perspective. Therefore, both indicators are key metrics for inflation.
Trading Economics estimates suggest that this week’s data releases will indicate a rise in inflation. Specifically, they expect the PPI to grow by 3.3% year-on-year in December 2024, higher than the previous 3%.
The outlook doesn’t improve when economists exclude food, as the core year-on-year PPI for December 2024 is also expected to reach 3.5%, up from 3.4% previously.
As expected, the CPI forecast for December 2024 paints a similar picture. The year-on-year CPI is expected to rise from the previous 2.7% to 2.9%, further deviating from the Federal Reserve’s 2% target. However, the core year-on-year CPI may remain steady at 3.3%.
These predictions were made following last week’s higher than expected job numbers and President-elect Donald Trump’s threats of imposing high tariffs on Chinese goods.
So, how will the cryptocurrency market react?
Price movements may slow down
Bitcoin and the broader cryptocurrency market have historically performed poorly in risk-off environments, and this time may not be any different.
James Butterfill, Research Director at CoinShares, asserts that this week’s data may bring selling pressure to Bitcoin and other cryptocurrency prices.
“Taken together, these factors (the expected rise in producer and consumer costs) may result in no rate hikes in the market during the first half of this year, which could affect any upward movement in Bitcoin prices. Hence, the upward momentum is more likely to come from some form of Bitcoin-related legislation approval after the inauguration,” he said.
The highly anticipated presidential inauguration of Donald Trump is set to take place on January 20th. The President-elect has made several promises supporting cryptocurrencies, most notably the commitment to establish a strategic reserve for Bitcoin.
Amidst high inflation expectations, the CME FedWatch tool shows a 97% probability of the Federal Reserve keeping interest rates unchanged after the Federal Open Market Committee (FOMC) meeting on January 29th.
