The US inflation rate, as measured by the Consumer Price Index (CPI), broke records again in May. The recorded indices were once again the highest in more than 40 years, reinforcing that inflation is indeed here to stay. While high inflation is common in countries like Brazil, the US figures are seen as alarming. Due to the rise in prices, the cryptocurrency market has fallen again, amid fears of further interest rate hikes. After the release of the CPI, the price of Bitcoin (BTC) began to fall and is now down 1.97% to R$144,697. In dollars, the drop is even greater (3.77%) and BTC is now quoted close to $28,000. In the same vein, Ether (ETH) dropped 4.66% and is quoted at R$8,375. The dollar price plummeted 6.38% and is now at $1,683.
Highest inflation since the 1980s
The CPI index reached 1% last month, beating market expectations, which had expected a 0.7% increase. As a result, 12-month US inflation stood at 8.6%, beating market expectations of 8.2%. In April, the index accumulated an increase of 8.3% in 12 months, that is, inflation shows no signs of letting up in the US. Even the Core CPI – which excludes food and energy expenses – closed up 6%. There was a drop from 6.2% in April, but the market expected 5.9%. The core CPI for May, in turn, was stable at 0.6%, while the market estimated the rate at 0.5%. In other words, inflation remains persistent despite recent interest rate hikes in the US. Now, the Federal Reserve (Fed) remains under more pressure and the market waits if the monetary authority intends to make larger increases – and what the possible impacts of this will be.
Is the worst behind you?
The unexpected rise in headline inflation is problematic for policymakers in the midst of a rate hike cycle. This is because the Fed expected the bullish cycle to be short and to end in 2022. However, the first two increases had no effect on inflation. On the contrary, prices continue to increase with full force. With that, the market now waits to see whether the Fed will be forced to raise interest rates by 75 basis points, instead of the previously planned 50 basis points. The increase in interest rates in fact controls inflation, but, on the other hand, harms economic activity, reducing companies’ investments. Higher interest rates also drive investors away from risky assets such as the stock market and cryptocurrencies. For John Silver, CEO of Affinity Solutions and specialist in buying habits, inflation may have reached a peak. “Certainly there are positive signs that would indicate that the worst [na inflação] it’s backwards. The job market remains strong, which is putting money in people’s pockets. However, price increases are still outweighing people’s paychecks. Hopefully, this trend will reverse as inflation peaks and begins to dissipate. Our shopping spend data suggests that this is the direction we are heading,” he said. Also Read: VeChain Becomes UFC Blockchain Partner Also Read: Hacker Commits To Return 18 Million Stolen Optimism Tokens