The US personal consumption expenditures (PCE) index for February recorded an annual increase of 2.8%, in line with analysts’ expectations. Core inflation was reported to have eased slightly to 3.0% from 3.1% in the previous month. The data reflected a stable economic situation just before the outbreak of military conflict between the US and Iran in late February.
The cryptocurrency market reacted positively to the report with Bitcoin (BTC) surging back to $71,200. The recovery was driven by investors’ perception that pre-war inflation was still under control, thus reducing immediate pressure on the Federal Reserve (Fed) to raise interest rates in the near future.
FOMC meeting minutes showed that Fed officials are still considering the possibility of a rate cut this year, but remain wary of geopolitical risks. While the majority of members are prepared to raise rates if inflation breaks the 2% target, the market is now predicting a 98.4% chance that interest rates will be kept on hold at the April 29 meeting.
All eyes are now on the March Consumer Price Index (CPI) report due out tomorrow. This is the first inflation data that will include the direct impact of the US-Iran war, particularly the impact of the surge in crude oil prices. Analysts are predicting a significant spike in inflation due to global energy supply disruptions.
The median Wall Street forecast is for March CPI to jump to 3.3% on an annualized basis, a sharp increase from 2.4% in February. A higher-than-expected figure could trigger extreme volatility in the Bitcoin market and other risk assets as investors reassess the long-term inflation outlook in a war environment.
