US inflation climbs to 3.7% on higher energy prices as Bitcoin takes a hit

US inflation climbed to 3.7 per cent year on year in September. That is higher than in August, and inflation remains a central political and economic issue in the run-up to the US midterm elections. The reading is a particular setback for the Republicans, with the rising cost of living once again moving to the centre of public debate. Stock markets and Bitcoin took a knock on the news. At the time of writing, Bitcoin is trading at $80.000 again, a level it absolutely has to hold.

A major driver of the higher inflation was the sharp rise in energy prices. They rose 5.2 per cent in September compared with a month earlier. In August the increase was still 2.1 per cent. The climbing fuel and energy costs are once again putting pressure on the household budgets of American consumers and weighed heavily on the headline inflation figure.

Core inflation

Financial markets reacted negatively to the release of the inflation data. Investors fear that a stubborn rate of inflation could push the US central bank towards a more cautious interest rate policy, or towards keeping rates high for longer. Both equities and risk assets came under pressure as a result.

The crypto market also took a hit. Bitcoin, the world’s largest cryptocurrency, fell to $81.000 in the hours after the inflation figures were published. Higher inflation and the expectation of a strict monetary policy tend to make investors more cautious, which can dampen demand for riskier investments such as cryptocurrencies.

Over the coming months, investors will therefore keep a close watch on whether inflation cools further or accelerates again, given the significant influence this has on both the financial markets and the Federal Reserve’s interest rate policy.