10 Things To Know About This Week’s CPI Numbers; How It Affects Crypto

Welcome to CPI week! The latest numbers will be dropping Thursday, and CPI figures have a big impact on Fed monetary policy which in turn is a major influence on Bitcoin price.

Here is everything you need to know.

1. What is the CPI?

The CPI, Consumer Price Index, measures the monthly change in prices paid by consumers. It is used worldwide to measure inflation and deflation. Every country has its own institution or department to collect and calculate data and then issue the CPI numbers each month. I discuss the CPI figures for the US in this article because they play an important role in how the US Fed manages its monetary policy.

2. Why Should Crypto Investors Care About the CPI?

An increasing number of institutional investors enter the crypto space. Their investment decisions are heavily influenced by macroeconomic indicators such as inflation and unemployment rates. These numbers in turn affect the Fed’s interest rate decisions and whether there will be quantitative easing or tightening.

Traditional stock markets fluctuate with these indicators, and so does Bitcoin price which in turn has a major impact on the crypto market as a whole.

This is shown by a relatively high correlation between Bitcoin price and the stock market. Understanding the CPI gives you a better perspective on how Bitcoin price will develop in the future.

3. Who is Responsible for Collecting and Publishing CPI Data, and When is it Published?

The US Bureau of Labor Statistics (BLS) is responsible for collecting, calculating, and publishing the CPI data. CPI data is published monthly, the release schedule can be found here.

As of writing this newsletter, the next release date is on the 13th of October when the CPI for September will be published.

4. How is the CPI Calculated?

The data collected covers different regions of the US. Various categories are weighted differently. CPI data are collected via two surveys which I have simplified and visualized below. The details can be found on BLS’s official website.

The Year-on-Year CPI compares the CPI of this month to the corresponding month in the previous year. The Month-on-Month CPI compares how the CPI changed this month relative to the previous month.

5. Components of the CPI

The CPI consists of numerous components such as food, transport, and clothing.

You can check them out and compare the newest figures with recent months here.

6. What is the Core CPI?

The Core CPI is the CPI excluding food and energy. It measures the changes in the price of goods and services. The Core CPI is also published by BLS.

7. What are CPI Predictions?

Before the monthly CPI numbers are published, you can check CPI predictions to get a general idea of the macroeconomic sentiment. The forecasts for the CPI and PCE (personal consumption expenditures) are published by the Federal Reserve Bank of Cleveland.

Many investors use these numbers to get a preview of how the situation is developing before the official figures are out.

8. How Oil Prices Affect the CPI

Numerous factors such as the war between Russia and Ukraine and the recent decision by OPEC+ to cut production of crude oil have a major impact on oil prices.

When oil prices — or energy prices in general — go up, costs for many other things increase as well. That’s because energy is the master resource that is required for every kind of economic activity to happen.

As a result, a change in oil prices has a big effect on CPI numbers. If you want inflation to go down you don’t want to see increasing energy prices.

9. What is the Personal Consumption Expenditures Index and why is it Important?

The PCE Index measures consumer spending. It is published monthly by the US Bureau of Economic Analysis (BAE). Even though the media put a lot of attention on the CPI, the Fed uses the PCE Index to measure inflation. That is because the PCE Index takes a broad range of expenditures into account. It is also weighted by data acquired through business surveys, which is more reliable than the consumer surveys used to collect data for the CPI.

10. Why is the CPI Still Important?

The CPI and PCE follow the same trend over time. However, PCE tends to report lower inflation than the CPI.

Even though the Fed considers PCE to be very important, FOMC meetings, where the Fed discusses interest rates, always take place before PCE figures are released. That’s why you should always keep an eye on CPI figures.