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The crypto market has moved higher amid optimistic projections ahead of the CPI reading.

Bitcoin and Ethereum, the two largest cryptocurrencies by market cap, have seen slight gains over the past day ahead of the first Consumer Price Index (CPI) report of the year. The annual CPI is expected to cool down further compared to November’s 7.1%, which could pressure the Fed to deliver a slower rate hike. 
 

Inflation Expected to Slow to 6.5%

The US Bureau of Labor Statistics will release the first consumer price index (CPI) reading of the year today at 13:30 GMT. Economists and researchers expected annual inflation to decline to 6.5% from 7.1% in November last year. 

Core inflation, which disregards volatile food and energy prices, is projected to drop to 5.7% from 6%. On a monthly basis, the CPI is predicted to stay unchanged, while the Core CPI is expected to increase by 0.3%.

Notably, some economists are optimistic inflation might slow down even more. For one, RBC Economics has projected that the US consumer price growth would slow significantly in December to 6.3%. “The steep decline in headline price growth is largely thanks to a significant drop in energy prices,” they said, adding:

“We expect ‘core’ (excluding food & energy products) price growth to slow to 5.6% YoY in December from 6.0% in October. Further signs of declining price growth would support further slowing in the pace of hikes from the Fed. We continue to expect 50 bps of additional hikes to the Fed funds target range in Q1 before a pause at a terminal rate of 4.75% to 5.0%.”

Other major financial companies, including SocGen, National Bank Financial (NBF), and Deutsche Bank expect the CPI figure to drop to 6.3%, 6.5%, and 6.3% in December, respectively. Wells Fargo also projected the CPI to slow down to 6.3%, saying:

“We expect another sizable decline in energy prices to weigh on the headline and offset further gains in food and core services prices. But the drop in prices should also be helped along by another decline in core goods, led once again by used autos.”

Crypto Market Surges Higher Ahead of CPI Release

The crypto market has moved higher amid optimistic projections ahead of the CPI reading. Bitcoin and Ethereum lead gains among the top ten cryptocurrencies, while the broader crypto market is mainly green. 

The flagship cryptocurrency has gained more than 4% over the past day, climbing above the $18,000 mark for the first time since December 14. Ethereum has soared by around 5% over the past 24 hours, reaching a local high of around $1,408, a level not seen since early November. 

The surge in crypto prices comes as economists expect a softening of inflation. Investors hope the decline may pressure the US Federal Reserve to slow down interest rate increases. 

Over the past year, the Fed and other central banks worldwide have been raising interest rates aggressively to tame soaring inflation. In its latest meeting, the Fed brought the announcement of another interest rate hike of 50BPS. After all the rate hikes, 2022 ended with a target interest rate range of 4.25%-to-4.50%. 

Rate hikes by the Fed contributed to creating an unfavorable environment for risk assets. It was mostly downhill for the Nasdaq Composite, the S&P 500, and the Dow Jones in 2022. Things have been worse for the crypto market, as higher rates and the expectation of higher rates hindered the market from registering any significant gains. 

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