U.S. inflation comes in above estimates, 8.3% year-on-year and +0.1% month-on-month

Quick Take

  • U.S. inflation for the month of August rose 8.3% year-on-year.
  • Headline month-on-month inflation was 0.1%, above expectations.

U.S. inflation came in above estimates, posting an 8.3% jump in August, higher than the previous month, according to the latest CPI data.

The data show a +0.1% month-on-month increase since July and up  8.3% year-on-year bump. Estimates called for a reading of 8% year-on-year, down from the 8.5% in July, and drop of 0.1% month-on-month.

The U.S. inflation report was expected to show a sequential decline strengthening the case that, in the U.S. at least, we may be past peak inflation, according to global head of market research at forex.com and City Index Matt Weller. However, Tuesday's print suggests the peak inflation narrative may have been premature.

Market reaction

Bitcoin plunged below $22,000 on the news, trading at $21,816 following the higher-than-expected print.

Ledn's Chief Strategy Officer Mauricio Di Bartolomeo told The Block on Tuesday, "while it will be interesting to watch the headline number, investors appear to have a fair idea about the Fed’s next move."

The CME's FedWatch tool shows investor consensus sees around an 86% chance of the Fed hiking rates by 75 basis points next week, Di Bartolomeo said. "Investors are making a calculated guess at when the Fed “might” stop raising rates, and this is a big driver behind the recent optimism in the markets."

Now that the number has come out on the up-side surprise, it may front-load some of the hike expectations to November and markets could sell off.


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Word on the street

It is telling in and of itself how closely the crypto ecosystem is watching the CPI print this week, Jonah Van Bourg, global head of trading at Cumberland, told The Block ahead of time. 

"It underscores how intertwined crypto has become with other risk assets, which is requiring crypto market participants to become more sophisticated in understanding those correlations," Van Bourg said. He suggested higher-than-expected inflation could negatively affect crypto prices.

Crypto was trading bearish ahead of the U.S. inflation data, "hitting an ultra low point last Tuesday, Sept. 6, when CME's Sept. bitcoin expiring futures implied financing was negative 18%, which was the most futures backwardation we have seen since March 2020," BlockFi's global head of trading Joe Hickey told The Block on Monday.

Institutional traders find it easier to profit from a crypto market in a state of contango, when the price of futures contracts is higher than the current spot price.

However, on Sept. 9, bitcoin futures implied financing snapped back into contango, reaching +4%. "This is a massive move driven by a conflicted sentiment between bulls and bears," Hickey said.

The correlation between crypto and equities continues to be tight, meaning its likely that macro developments this week will introduce volatility in outrights such as BTC/USD and ETH/USD, Hickey concluded. 

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About Author

Adam Morgan is a reporter covering cryptocurrency, financial markets, and economics – anything from price movements, earnings reports, and inflation to the U.S. Federal Reserve interest rate decisions and everything in between. Adam is based in London.