White House in Damage Control Mode as Crypto Markets Brace for 8%-Plus Inflation

The Biden administration blames Russia's war on Ukraine for the extraordinary elevated inflation to be revealed by Tuesday's data from the U.S. Labor Department.

AccessTimeIconApr 12, 2022 at 9:05 a.m. UTC
Updated Apr 12, 2022 at 2:37 p.m. UTC

Omkar Godbole was a senior reporter on CoinDesk's Markets team.

The Biden administration is in a damage control mode ahead of the latest inflation data, which is likely to show the U.S. cost of living soared in March, bolsteringh recession fears.

"We expect March [Consumer Pricer Index] headline inflation to be extraordinarily elevated due to [Russian President Vladimir] Putin's price hike," White House press secretary Jen Psaki told reporters on Monday. "We expect a large difference between the core and the headline inflation, reflecting the global disruptions in energy and food markets [caused by Russia's invasion of Ukraine]."

The data due on Tuesday at 12:30 UTC (8:30 a.m. ET) is forecast to reveal the CPI, which is defined as the change in the prices of a basket of goods and services typically purchased by specific groups of households, increased 8.3% year on year in March following February's 7% rise, according to data source FXStreet. The above-8% figure would be the first in at least four decades.

Core inflation, which strips out the volatile food and energy component, is expected to have risen 6.6% year on year versus 6.4% in February.

According to Psaki, the disparity between the two metrics would stem from an abnormal increase in gas prices last month. "At times, gas prices were more than $1 above pre-invasion levels, so that roughly 25% increase in gas prices will drive [Tuesday's] inflation reading," Psaki said.

The White House's warning of a big bump in the headline CPI due to the volatile food and energy component is perhaps aimed at calming market nerves ahead of the data. Risk assets, including bitcoin (BTC), have come under pressure in the lead-up to the CPI release on fears that an above-8% reading would strengthen the case for faster rate hikes and balance sheet runoff by the Federal Reserve.

Last week, Federal Reserve Governor Lael Brainard said that "bringing inflation down is of paramount importance." Brainard struck a hawkish tone, favoring interest rate increases and a rapid balance sheet runoff to bring U.S. monetary policy to a "more neutral position" later this year.

Psaki's comments perhaps indicate the White House expects the headline inflation to cool in the coming months, as the panic in the energy market has faded. Gas prices in the U.S. have pulled back to $4.11 per gallon from the record high of $4.33 per gallon hit on March 11, according to the American Automobile Association. West Texas Intermediate crude traded at $96 per barrel at press time, down 23% from the high of $123 seen a month ago, per charting platform TradingView. Energy prices had surged after Russia invaded Ukraine in late February.

It remains to be seen if investors take cognizance of the White House's view and remain calm in case of an above-8% CPI print. A big miss on expectations could restore risk-on sentiment in markets.

That said, the jury is out on the returns of animal spirits in asset markets, given the growing consensus that the era of low inflation and cheap liquidity may be behind us.

"We may be on the cusp of a new inflationary era," Agustín Carstens, general manager of the Bank for International Settlements, said in a speech earlier this month. "The forces behind high inflation could persist for some time. New pressures are emerging, not least from labor markets, as workers look to make up for inflation-induced reductions in real income."

“It seems clear that policy rates need to rise to levels that are more appropriate for the higher inflation environment. "Most likely, this will require real interest rates to rise above neutral levels for a time in order to moderate demand," Carstens added.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Omkar Godbole was a senior reporter on CoinDesk's Markets team.

CoinDesk - Unknown

Omkar Godbole was a senior reporter on CoinDesk's Markets team.

Trending

1
CoinDesk - Unknown
First Mover Asia: Chip Maker Nvidia Isn’t an Ether Proxy, Bitcoin Holds Near $21K

Crypto mining aided Nvidia's bottom line, but it hasn't been a major cause of the stock's steep decline. Ether falls but hovers around $1,200.

CoinDesk - Unknown
2
CoinDesk - Unknown
CoinFLEX to Launch a $47M Recovery Token to Solve Withdrawal Issues

CoinFLEX said last week it was halting withdrawals amid market declines and counterparty uncertainty.

CoinDesk - Unknown
3
CoinDesk - Unknown
Solana’s Macalinao Brothers Double Down on Crypto Venture Fund

Crypto VCs told CoinDesk that building projects and investing in them is a tricky mix.

CoinDesk - Unknown
4
CoinDesk - Unknown
Ms. Crypto Goes to Washington

The Lummis-Gillibrand bill represents a mainstreaming of crypto, even if it's unlikely to pass.

CoinDesk - Unknown