US Inflation Rate Rises to Four-Decade High of 7% in December

The U.S. Labor Department’s Consumer Price Index (CPI), the most widely used gauge for tracking inflation, rose to an annual clip of 7.0%, hitting predictions made by economists. This marks the highest increase since June 1982, beating last month’s 6.8%.

The core CPI, which excludes more volatile energy and food prices, accelerated to 0.6% month-over-month, exceeding economists’ forecasts. In November the rate was 0.5%.

Bitcoin was changing hands around $43,900 up about 1.1% in the minutes since the December CPI report was released by the Labor Department’s Bureau of Labor Statistics (BLS) on Wednesday.

Many investors say bitcoin can act as a hedge against inflation, since its supply is tightly controlled by the underlying blockchain’s originally programming. But a push by the U.S. Federal Reserve to raise interest rates – to tackle hot inflation – could make fixed-income assets like bonds more attractive, reducing the appeal of riskier bets on things like stocks and cryptocurrencies.

“The trend in prices is still headed north,” Peter C. Earle, economist at the American Institute for Economic Research, told CoinDesk. “At this point part of the ongoing policy debate will likely shift to whether the Fed waited, or is waiting, too long to react to rising prices.”

On Tuesday, Federal Reserve chairman Jerome Powell appeared before the U.S. Senate Banking Committee for a confirmation hearing over his renomination by President Biden.

Powell said that inflation remains well above the Fed’s target, which “is telling us that the economy no longer needs or wants the very highly accommodative policies that we’ve had in place.” Bitcoin is up 3.1% over the past 24 hours after the hearing.

He added that the Fed might raise interest if inflation persists at high levels and longer than expected. Powell’s hints at increased interest rates in December were followed by a steady decline in bitcoin’s price, now around $43,000, according to CoinDesk data.

“The Fed sees inflation lasting till mid-2022 and that is probably when they will let the balance sheet decline,” Edward Moya, senior market analyst at The Americas OANDA said. “The path of inflation may drive quicker rate hikes and a sooner start to shrinking the balance sheet, and that could be bearish short-term for risk assets such as cryptos, but equities will likely feel more pain.”

“There is still significant money on the sideline waiting to buy Bitcoin, but many crypto traders are having a wait-and-see approach,” Moya said.

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