The Producer Price Index for the month of August was just released. The data highlights a -0.1% MoM change in producer prices. It is also what most economists estimated the PPI to be. Meanwhile, the core PPI shows an MoM change of 0.4%, rather than the expected 0.3%.
Since the release of the data, the crypto prices have gone up. Both Bitcoin and Ethereum prices have surged by 1% in the last 24 hours. However, this rally does not have the same strength as the bulls were hoping for.
Why Inflation Data Is Important For Crypto
The CPI data released yesterday was not good news for the crypto market. The YoY inflation reveals that the market may have overestimated the reduction in inflation levels. The Federal Reserve was already prepared for a jumbo hike. However, after the bad inflation data, the market began to price in a 48% chance of a 100 bps crypto hike.
The Producer Price Index is the change in price the producers receive for goods and services. It is another indicator of inflation. The Fed takes into account the PPI data before making its decision on the next inflation data. However, this PPI data may not be enough to change the Fed’s stance. According to @tedtalksmacro, a major crypto influencer, the increase of inflation in PPI might even be the bigger deal,
Key Fed officials backed taking an aggressive stance to combat the inflation levels. Cleveland Fed president Loretta Mester has backed bringing the interest rate over 400 target level. Neel Kashkari of Minnesota Fed, a traditional dove, backed a Volcker-esque stance. Paul Volcker, a Fed president, raised interest rates to curb inflation, even at the cost of tipping the economy to a recession.
Will Elon Musk’s Deflation Warning Come True
With the PPI data failing to provide good news on inflation, the Fed is all set for a big interest hike on the 21st of September at the next FOMC meet. According to Elon Musk, such a hike will lead the US economy to deflation.