Bitcoin (BTC) bulls are hoping for continued good news on the U.S. inflation front from Thursday morning's July Consumer Price Index report from the Bureau of Labor Statistics.

Economists expect a 0.2% increase on a monthly basis, the same increase as seen in June. Year-over-year growth is forecast at 3.3%, up from 3% in June. Headline inflation, which is not adjusted for seasonal factors and which includes often-volatile food and energy prices, peaked at 9.1% in June 2022 and was running at an 8.5% pace in July of last year.

Core CPI, which strips out more volatile food and energy costs, is expected to come in at 0.2% in July, matching June's figure. The annual core CPI pace is expected to slip to 4.7% from 4.8%. Core CPI peaked at 6.5% in March 2022, and one year ago in July, the annual level was 5.9%.

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Aiming to tame galloping inflation in 2022, the Federal Reserve early last year embarked on a string of rate hikes, taking its fed-funds rate from a range of 0% to 0.25% to the current 5.25%-5.50%. That historic pace of monetary tightening was at least in part responsible for the big decline in the price of bitcoin, which has dropped from nearly $69,000 late in 2021 to close out 2022 at around $16,000.

While the largest cryptocurrency is up 75% so far this year, the bounce has been rather tepid given the enormity of the preceding decline, with bitcoin — now trading at about $29,000 — still off roughly 58% from its all-time high.

To the extent that Fed tightening helped bring along bitcoin's price crash, the slowing and perhaps end of that tightening has been seen as a factor in bitcoin's modest recovery. While low number from Thursday's CPI might reinforce that idea, short-term interest rate traders have already priced in no more rate hikes from the Fed this year. Estimates for next year from CME Group show traders are anticipating rate cuts from the U.S. central bank, perhaps as soon as February.

While it's hard to imagine this week's CPI data changing the bullish bitcoin calculus with respect to central bank policy, a negative surprise — i.e., CPI coming in significantly higher than expected — could send bitcoin lower on worries that interest rates will go even higher.

CPI Inflation Federal Reserve Interest Rates Bitcoin

Stephen Alpher

Stephen is CoinDesk's managing editor for Markets. He previously served as managing editor at Seeking Alpha. A native of suburban Washington, D.C., Stephen went to the University of Pennsylvania's Wharton School, majoring in finance. He holds BTC above CoinDesk’s disclosure threshold of $1,000.