U.S. CPI Was Flat in May, Beating Expectations; Bitcoin Rises to $69.2K

Softer inflation data could prove a boon to recently under pressure digital asset prices.

The U.S. Consumer Price Index (CPI) was unchanged in May, data showed on Friday, coming in lower than expected and offering some respite to recently battered digital asset prices as the headline inflation rate remained below the Federal Reserve's 2% target for a second month.

The CPI was flat last month, compared to economists' forecasts for a 0.1% rise and following a 0.3% increase in April.

Over the past 12 months, CPI was up 3.3%, lower than both the projections and the previous month's reading at 3.4%.

The core CPI, which excludes food and energy costs, rose 0.2% in May, better than forecasts for a 0.3% rise and versus 0.3% in April. Year-over-year, core CPI rose 3.4% against expectations for 3.5% and April's 3.6%.

Bitcoin (BTC) welcomed the soft inflation reading, jumping to $69,400, up nearly 4% over the past 24 hours.

After inflation readings fell rapidly in 2022 and 2023 as the Fed jacked up interest rates, the trend stalled in the previous months at stubbornly higher levels than the 2% target. This shift poured cold water on market participants' expectations of rate cuts.

Early this year, traders anticipated five or six 25 basis points (bps) cuts in 2024 by the end of December, which shrunk to one or two before today's CPI report with the first cut not anticipated until September, the CME FedWatch Tool showed.

Crypto prices have been "highly sensitive" to U.S. economic data recently, K33 Research noted in a report earlier this week. The recent hotter inflation figures and resulting diminished hopes for rate cuts propelled bitcoin's tumble from all-time high prices above $73,000 in March to below $57,000 in May.

Traders expect that looser monetary conditions will fuel the crypto rally's next leg to record prices.

Contrasting the U.S. expectations, several key central banks globally have already started to lower benchmark rates with the European Central Bank and Bank of Canada cutting rates last week, which helped to propel the U.S. dollar index (DXY) to a one-month high.

Investors will also watch closely the Fed's "dot plot" to be released later today of the Federal Market Open Committee members' interest rate projection, which could move asset prices.