Inflation Data Prompts Positive Crypto Market Response
YEREVAN (CoinChapter.com) — In May, a key measure of US inflation showed a second month of decline. The core consumer price index (CPI), which excludes food and energy costs, rose by 0.2% from April. The year-over-year increase was 3.4%, the slowest pace in over three years.
US Consumer Inflation Trends (May 2006 – May 2024). Source: Bureau of Labor Statistics, Yield Report
These figures suggest inflation may be cooling. Policymakers have stressed the need for several months of consistent data before making any significant policy changes. The latest jobs report has also added to the debate on how restrictive current policies are.
Jim Bullard, former president of the St. Louis Fed, said,
“This is good news for the committee. They’ve been looking for a softer report, and they got it here. But we need more news like this to consider easing policies.”
Jim Bullard on Yield Curve Normalization. Source: BSurveillance Positive Market Reactions to Easing Inflation
The inflation data led to positive reactions in the markets. Stocks opened higher, and Treasury yields dropped. Both two-year and 10-year yields decreased by about 14 basis points. Traders have now priced in two rate cuts by the Fed in 2024, with the first expected in November, shortly after the presidential election. This sentiment also extended to the crypto market, which saw a notable recovery as investors responded to the favorable inflation data.
US Inflation Trends: Core CPI and Services Prices (Mar 2021 – Jun 2024). Source: Bureau of Labor Statistics, Bloomberg
Bitcoin surged by 2.64% in the last hour, while Ethereum climbed 3.25%, breaching the $3,600 level. The overall crypto market turned bullish, rebounding from a bearish trend in recent days. Major altcoins also experienced significant gains on Wednesday, with ADA, XRP, and SOL rising between 1.3% and 3.5%. Meme tokens such as DOGE and SHIB each saw a 2.1% increase.
Source: CoinMarketCap Meme Tokens Surge Following CPI Report
This reduction in inflation sparked fresh hopes for the US economy and had a notable impact on the prices of several meme coins.
Memecoins like PEPE, DOG, GME, and BODEN were among the top gainers, showing double-digit increases. Runes-based DOG-To-The-Moon (DOG) and GME meme coin — unrelated to the GameStop company — experienced the highest surges, rising above 20%. BODEN followed with a 13% rise, and PEPE with a 10% rise.
Despite the surge in meme coins, several key voices in the crypto industry remain unimpressed. A recent X post by crypto designer OxDesigner challenged the value of meme coins, stating,
“Every cycle has expanded the functionality and reach of crypto, but where do meme coins take us? There are no compelling visions of how they extend into or improve everyday life.”
OxDesigner Critiques the Role of Meme Coins in Crypto. Source: @0xDesigner
This comment also attracted the attention of Ethereum co-founder Vitalik Buterin.
Vitalik Buterin Highlights Key Crypto Developments. Source: @VitalikButerin Encouraging Inflation Trends Spark Optimism in Markets May CPI Report Shows Encouraging Inflation Trends
Bloomberg economists Anna Wong, Eliza Winger, and Estelle Ou noted,
“May’s CPI report is encouraging. We anticipate a string of similar reports this summer.”
Shelter prices, the largest service category, climbed by 0.4%, offsetting the decline in gasoline prices. Owners’ equivalent rent, a significant CPI component, increased at a similar rate.
US CPI vs. PCE Price Index for Shelter (1990-2024). Source: MacroMicro.me
Excluding housing and energy, service prices remained unchanged from April, marking the weakest increase since September 2021. Central bankers consider this metric important for assessing inflation trends, though it is based on a different index known as the personal consumption expenditures (PCE) price index. The PCE, which weighs shelter differently, is closer to the Fed’s 2% target.
Broad Decline in Service Inflation, Real Earnings Increase
Service inflation declined broadly. Car insurance costs dropped for the first time since 2021, and airfares fell by the most in almost a year. Prices for cable, satellite, and streaming services saw the largest decline in nearly two decades.
The price of goods has been providing some relief to consumers. Core goods prices, excluding food and energy commodities, were flat in May. Used car prices rose the most this year, while prescription drug prices increased the most since January 2023.
A separate report combined the inflation data with recent wage figures, showing real earnings growth of 0.8% from a year ago, the most in three months.
Fed officials are meeting to discuss these figures. They are expected to maintain rates at a two-decade high for the seventh consecutive time. Jerome Powell, the Fed Chair, noted that significant data released during meetings could influence their economic projections.
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