The latest Consumer Price Index data for June has defied expectations by hitting a new four-decade record of 9.1%.

Key Takeaways

U.S. inflation hit a 40-year high of 9.1% in June 2022, the U.S. Bureau of Labor Statistics confirmed today.
Rising energy and gas costs were the biggest contributors to the surge.
Bitcoin and the rest of the cryptocurrency market plummeted in response to the CPI print.

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As a result of the continually rising U.S. inflation, markets are already betting on another 75 basis points hike from the Federal Reserve later this month. 

June CPI Hits Four-Decade High of 9.1%

U.S. inflation is at a four-decade high.

The latest inflation data published by the U.S. Bureau of Labor Statistics today has shown the Consumer Price Index—a benchmark measure for inflation—rising by 1.3% on the month in June 2022, putting the annual U.S. inflation rate at a fresh 40-year high of 9.1%. Similar to the prior months, gasoline, shelter, and food indexes were the most significant contributors to the CPI. According to the bureau, the energy and gasoline indexes rose by 7.5% and 11.2% in June, while food rose by 1%. The core CPI, which strips away volatile energy and food prices, rose 0.7% over the same period.

Last month’s inflation rise has defied prior estimates of an 8.8% increase. The consensus view also had the core CPI in June slowing down from May or rising only 0.5%. Instead, the real core inflation came in at 20 basis points higher today.

The dollar index jumped to a two-decade high of 108.57 as news of the inflation rate surfaced, while the euro briefly extended its losses against the dollar, hitting $0.9998.

As for the Federal Reserve, the market is largely expecting the central bank to raise the key Fed funds rate by another 75 basis points at its next policy meeting scheduled for Jul. 27. However, with the CPI numbers coming in much hotter than expected, the market is also leaving a 14.2% chance of a 1% rate hike at the next Fed meeting. The Fed has hiked rates three times this year, putting the Fed funds rate at 1.5% to 1.75%.

Raising the key interest rate makes credit more expensive and resultantly shrinks the money supply within the economy. In theory, this should lower the consumer demand for goods and services and bring down inflation. However, U.S. consumers, responsible for about 70% of the country’s economic growth, are already feeling the heat. As things currently stand, they’re being squeezed from both sides: they have to pay increasingly higher prices for goods and services while also paying higher interest rates on their loans.

Plummeting consumer demand, on the other hand, directly affects the bottom line of companies, which could reflect poorly on their stock prices. In turn, rising inflation and interest rates leave consumers with little money for discretionary spending, including investing in long-tail risky assets like cryptocurrencies.

In the fallout of today’s CPI print, the crypto space was hit hard. Bitcoin fell from around $19,920 to $19,180, while Ethereum dropped 4.3% from $1,090 to $1,030. Other crypto assets also plummeted, bringing the global cryptocurrency market capitalization to around $889 billion. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.

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