Why Rising Inflation Is Weighing on Bitcoin and Crypto

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Here's the actual inflation data, broken down to sectors and why some fields are doing much worse than others.

September’s hotter-than-expected CPI report reignited fears that inflation is rising again, especially since the 3.7% annual increase was considerably larger than the 3.4% in August. Core CPI also rose to 2.6% year over year, above expectations and up from 2.4% the month prior. Gasoline jumped 9.1% in September alone, while shelter, airline fares, medical care, apparel, and other categories also moved higher.

This is what experts mean by sticky inflation: price pressures aren’t disappearing even after years of restrictive monetary policy. More importantly, they are spreading beyond one volatile category such as energy.

Why So Bad for Markets
Analysts at the Kobeissi Letter noted that US inflation has stayed above the Federal Reserve’s 2% target for 67 consecutive months. It was last below that level during the COVID-19-induced lockdown in January 2021. The KL also outlined particularly sharp annual increases in several sectors: fuel oil up 74.2%, gasoline up 34.2%, airline fares up 22.4%, car repairs up 5.8%, hospital services up 5.6%, and electricity up 4.4%.

Persistent inflation creates a difficult environment for financial markets because it gives the central bank less room to lower rates and can even force it to raise them further, as it did at the September FOMC meeting.

Higher rates increase returns on relatively safe assets such as government debt while raising borrowing costs throughout the economy. Highly valued growth stocks in particular are hurt by this because future earnings are discounted at a higher rate and debt-funded expansion becomes more expensive.

The reaction was telling yesterday: the S&P 500 lost over 1%, the Nasdaq fell almost 2%, and technology and AI-linked companies saw a brutal sell-off. The Kobeissi Letter estimated that roughly $800 billion in S&P 500 market capitalization disappeared during the trading session, making it the worst day since late July.

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