Bitcoin Price Threatened By Inflation, CPI Print To Shed More Light

Floating at a range between $18,800 and $19,500, Bitcoin price is cutting short and long positions. The current dynamics in the market have been driven by macro forces that have pushed BTC to its limits as it approaches a major economic event.

The Consumer Price Index (CPI) for September is poised to act as one of these events. In recent months, these reports, used by the US Federal Reserve (Fed) to benchmark inflation, have been followed by spikes in volatility.

At the time of writing, Bitcoin price is trading at $19,100 with sideways movement in the past 24 hours and a 6% loss in the past week. BTC’s price action has swept the crypto market as market participants for digital and traditional assets braced for volatility.

Bitcoin price pinching incoming? CPI printout will be decisive

Senior Market Analyst at Cubic Analytics, Caleb Franzen, shared his take on the upcoming CPI report. Today, the US government released its Producer Price Index, one of the leading inflation benchmarks in the country.

The PPI is accelerating, Franzen said, from 6.5% in August to 6.8% in September, exceeding expectations and hinting at higher inflation reflected by the forthcoming CPI printout. The PPI is far from its annual low of 9.2%, but as the analyst said, the upward trend reflects the “stickiness” of inflation and could signal the US Fed to adopt a more aggressive monetary policy.

PPI Final Demand Services accelerated year on year in the latest producer price index data.

For Aug.’22, the year-over-year change was +6.5%
For Sept.’22, the YoY change was +6.8%

It is significantly lower than the March 2022 peak of +9.2%, but highlights the stickiness and impact of wages. pic.twitter.com/zrlzfS3SNT

— Caleb Franzen (@CalebFranzen) October 12, 2022

In this sense, and by examining the factors that contribute to high inflation, Franzen observes a “tug-of-war” between inflationary and deflationary forces. Overall, the reduction in energy prices and the fall in the price of oil and fossil fuels could turn the tide in favor of moderation in inflation.

But this scenario is currently uncertain and thus influences the Fed’s decision, which in turn negatively impacts the Bitcoin price and the performance of legacy financial assets. This upcoming CPI could reflect this uncertainty, the analyst argued:

I expect the CPI to be relatively unchanged from month to month, almost certainly ±0.2%. On an annualized basis, I think +8.0% or more is almost certain; although I expect core CPI, median CPI and trimmed average CPI to accelerate from their August results.

Is high inflation the new normal?

This could allow Bitcoin price to experience a relief rally in the near term, removing the current uncertainty in the nascent asset class. If this happens, $20,500 will surely continue to act as a critical resistance and short-term headwind.

After the CPI Print, the upcoming Federal Open Market Committee will no doubt bring more volatility to the market. As noted by trading desk QCP Capital, these events have led Bitcoin price to a positive performance.

In the chart below for the BTC/USD trading pair during the FOMC, there has been a short-term rally followed by major crashes. However, as market prices rise in a more aggressive Fed and more inflation, these sudden price actions become less powerful.

Will BTC finally be able to break out of its current range or will it just see another short lived rally?