40-Yearr High Inflation Surged Another 100bps in June: Tailwind for Bitcoin?

U.S. spenders got a brief respite from rising prices in May. But last month, a torrent of new inflationary pressures on consumer prices moved the Fed’s preferred inflation barometer up to a 40-year high.

The personal consumption expenditures price index tracking the 12-month rate of inflation rose to 6.8% in June. That’s the highest U.S. dollar inflation consumers have seen since the Volcker regime in 1982. Growing inflation through June markedly exceeded Wall Street forecasts.

Moreover, the Bureau of Labor Statistics CPI measure of inflation clocked 9.1% in June. The Federal Reserve created, lent, and spent trillions of new dollars over the past two years.

All that new money is chasing after fewer goods and services as GDP declined through Q1 and Q2. The Fed has meanwhile raised interest rates another round to whip inflation. (Bitcoin pumped on that news this week.)

Investors Are Seeking Shelter as Prices Rise

Inflation was already out of control in April, when Fatherly reported the results of a survey that found 99% of U.S. households have changed their spending routines because of rising prices.

CNN’s Parija Kavilanz reports consumers are cutting back on non-essential spending and impulse shopping. Forbes says people are eating out less, shopping in bulk, and switching to more affordable brands. Investment fund managers and retirees who rely on their services are also looking for ways to weather this cycle’s monetary bubble.

A Global Atlantic Financial Group survey of retirement-aged investors found 3 out of 5 respondents see hedging dollar inflation as a challenge this year.

Bitcoin investors have seen it as an inflation hedge from its inception and continue to today. But not everyone sees it their way.

In May, Fortune’s Taylor Locke filed a report from Bank of America analysts who argued Bitcoin is a risk asset, not an inflation hedge. In June, NextAdvisor pointed readers to the Bitcoin and equities correlation and the cryptocurrency’s deep capitulation this year as evidence the coin is no dollar hedge.

They may have spoken too soon. As the Motley Fool’s Neil Patel explained, time horizon matters in this analysis.

Bitcoin Price Rallied as Inflation Did Its Worst

As recently reported by CryptoPotato:

“Bitcoin price action resembles a bottom formation phase, as it has rebounded from the $17K-$20K range. After creating multiple higher highs and lows over the last few weeks, the market has shown signs of strength, indicating that a bullish trend is shaping, at least in the short term.”

Is it just a coincidence with surging prices, while unrelated factors are at play here? Or is rising inflation leading a Bitcoin price rally? Historically, the price of a coin has tracked along with the expanding rising prices.

An easy glance over the Bitcoin price chart at the 10-yr view alongside the year-over-year inflation rate will do. On a logarithmic scale, there is a noticeable positive correlation between the price of a bitcoin and consumer inflation.

Source: TradingView

It seems Gresham’s Law is still conspicuously at work in currency exchange markets. The law says funny money drives firm money out of circulation and into savings.