The crypto market obeys lots of fundamental factors aside the technical factors.
Apparently, technical analysis obeys fundamental analysis.
This is because, fundamental analysis covers the current market and economic conditions, and the assets intrinsic values – the company’s financial situation.
US CPI news is one of the fundamental factors that affects the crypto space positively or negatively, and crypto enthusiasts are always awaiting the news on a monthly bases.
In this article, we discuss CPI and how it affects the crypto market.
What is CPI?
![Consumer Price Index - CPI](https://cryptoforpidgin.com/wp-content/uploads/2022/09/Cpi.jpeg)
CPI is an acronym for Consumer Price Index, it measures the degree of inflation in an economy where the rising inflation affects the standard of living of residents.
CPI also measures the amount of prices paid by US citizens for goods and services.
This means that CPI varies from month to month.
Simply put, CPI tells us about the increase or decrease in the prices of consumers goods – Inflation.
What is CPI Used For?
The CPI value is used differently by different people or businesses.
- Federal reserves : Federal reserves use CPI to manage and calibrate monetary policies.
- Financial market traders: To calculate inflation and to correct financial decisions.
- Business of Firms: To manage resources by making necessary economic decisions. This often leads to laying off staffs or employing more staffs.
- Consumers: To also make economic decisions by reducing or increasing their investment power towards money management.
How Is CPI Calculated?
According to investopedia, Since the prices of consumers goods determine the CPI, the Bureau of Labor Statistics samples 94,000 goods/services prices monthly to calculate the CPI.
This calculation is done by considering the price index for each product or service in proportion to the variation of recent consumer spending to calculate the overall change in prices.
How US CPI Affect the Crypto market
As said earlier, the crypto market is affected by different fundamental factors, and CPI value is a huge fundamental factor.
This is because;
- When the CPI is high, inflation increases, and the investment power of consumers and investors reduce drastically. This often leads investors to start selling their assets to be able to cope with the rising price value of goods and service – Inflation. Also, when the CPI is low, inflation reduces, and investors can manage to increase their crypto purchasing power.
- Consumers can also loss their jobs when CPI increases, as firms are forced to lay off staffs while trying to manage the economic condition of the company. A consumer who loses his/her job will have no option than to withdraw any existing asset just to manage the critical situation. At this point, crypto investments will never be an option.
According to the Chained CPI measurement, $20 in 2019 is equal in purchasing power to $22.54 in 2022 (a difference of $2.54).
Finally, increase in the CPI will always have a negative effect to the crypto market as consumers/investor sell off their holdings to cope with the current economic drop down.
Crypto investors now observe the CPI very carefully because its use as a hedge against inflation has grown massively.
Conclusion
The Consumer Price Index is an important economic analytic metric. It measures the average changes in price paid by consumers for a basket of goods and services.
The importance of CPI value goes beyond the financial markets, as it is also used to prescribe for money management and for making the right economic choices.