The latest report from Cointelegraph points out that Bitcoin is digesting the "nightmare" CPI and employment data in the United States. But is the actual situation really so terrible? Let's analyze it rationally!
CPI data and core data interpretation
First, let's take a look at the CPI data. The estimated value was 2.3%, while the actual value announced yesterday was 2.4%. It can be seen that this is the first time in the past six months that the actual value has exceeded the estimated value.
However, this has caused some people to worry about inflation. But please analyze it rationally here, because from the trend point of view, even if the actual value announced this time is slightly higher than expected, the CPI data in the past six months still shows an overall downward trend.
Looking at the core CPI data, the estimated value was 3.2%, and the actual value announced yesterday was 3.3%. Although the core CPI data has increased this time, the core CPI data has been hovering between 3.2% and 3.3% in the past four months, which also shows a certain degree of stability.
Since the CPI and core CPI released this time exceeded the expected data, people began to worry whether the Fed would stop cutting interest rates next time. Speaking of interest rate cuts, let's take a look at the interest rate changes observed by the CME Fed;
According to CME Fed Watch, the probability of a rate cut at the November FOMC meeting is 15.7%, while the probability of a 25 basis point rate cut is as high as 84.3%. Therefore, from the perspective of the forecast probability, if nothing unexpected happens, the rate cut in November may be 25 basis points, instead of the 50 basis points that everyone expects.
The relationship between CPI and inflation
At this point you may ask, what is the relationship between CPI and inflation? Here I will briefly explain it to you. The relationship between CPI and inflation rate: inflation rate = (CPI number of this period - CPI number of the comparison period) / CPI number of the comparison period.
In simple terms, the inflation rate will be determined based on changes in CPI, and the increase in CPI directly affects the size of the inflation rate.
The relationship between interest rate cuts and inflation
The current CPI is 2.4%, while the real interest rate is 5%. This means there is a 2.6% interest rate gap between them. But in theory, the Fed's interest rate should be in line with the inflation rate. That is to say, according to the current 5% interest rate environment, if you deposit your money in a local bank in the United States, you will get 5% interest, and the current inflation (equivalent to "CPI") is 2.4%, which means that in theory, you can get an additional 2.6% return.
Therefore, it is believed that unless the Fed directly cuts interest rates by 250 basis points next time, to 2.5% which is the same as CPI, inflation will likely come. Otherwise, even if the Fed cuts interest rates by 50 basis points next time, the probability of inflation coming is very low.
But since the Fed's interest rate cuts are cyclical and may take several years, and are usually cut by 25 basis points or 50 basis points each time, I personally think that the probability of inflation sweeping in is very low.
In summary, although the CPI data exceeded expectations, the overall trend and interest rate environment still indicate that inflation is not an imminent threat. We should remain rational and not be swayed by short-term data fluctuations.
