As traders await the U.S. Consumer Price Index (CPI) data for July, some observers are focusing on forward-looking metrics that suggest potential for a rebound in inflation in the months ahead. This could bring some pain to risk assets, such as bitcoin. Noelle Acheson, author of Crypto is Macro Now newsletter, explained during CoinDesk’s Twitter Spaces event on Wednesday that the CPI data is backward-looking and exposed to base effects, which tend to hide the true picture. She noted the recent surge in U.S. gasoline prices to the highest since October 2022 and the spike in the FOA food index price, which could lead to an uptick in the inflation rate. Analysts at ING warned of continued elevated bond yields, as bitcoin has had an inverse relationship with the U.S. bond yields.
Stagflation is the worst possible scenario for risk assets, particularly for stocks, Acheson said, adding that compared to equities, the downside in bitcoin appears limited.
Given this backdrop, the U.S. 10yr has managed to remain above 4%, and we think it should continue to do so, analysts at ING said in a note to clients early Thursday. And remember, once we get through tomorrow’s U.S. inflation report, we’ll likely see headline U.S. inflation closer to 3.5% than 3% and core U.S. inflation closer to 5% than 4%.
As the U.S. Labor Department prepares to release the July CPI data on Thursday at 12:30 UTC (8:30 EST), economists surveyed by The Wall Street Journal (WSJ) estimate that the CPI rose 0.2% month-on-month in July, matching June’s pace to signal a continued easing of the inflation rate. The annualized rate is forecasted to inch higher to 3.3%, predominantly due to base effects, per WSJ. The core inflation rate is also forecast to hold steady at 0.2% in July from June and 4.8% from a year earlier.