The Daily Update: US CPI / Bitcoin Slump

Figures released yesterday showed that US Consumer Price Index (CPI) surged by 0.8% last month, well above market estimates of 0.2%, with the core metric, ex food and energy, posting a 0.9% monthly spike (estimates were for 0.3%)—the largest monthly gain since 1982. On a year-on-year basis, CPI increased from 2.6% in March to 4.2% in April, while core inflation jumped by 1.4 percentage points to 3.0%, highest pace since 2008. Again, both figures were well above what the markets were going for, 3.6% and 2.3% respectively.

Although the market was taken aback by the strength of these numbers, we must bear in mind that it is just one data point and might be an outlier, just as Friday’s Non-Farm payroll came in way below expectations (266k vs 1m). It did not take Fed speakers long to express their opinions on yesterday’s numbers, with Vice Chair Clarida clearly stating ‘Over the next few months, 12-month measures of inflation are expected to move above our 2 percent longer-run goal, largely reflecting, I believe, transitory factors such as a run of year-over-year comparisons with depressed service-sector prices recorded last spring as well as the emergence of some supply bottlenecks that may limit how quickly production can rebound in certain sectors. However, under my baseline outlook, these one-time increases in prices are likely to have only transitory effects on underlying inflation, and I expect inflation to return to—or perhaps run somewhat above—our 2 percent longer-run goal in 2022 and 2023’.

Also Tesla’s Elon Musk sent Bitcoin into freefall after he announced the electric-vehicle manufacturer is suspending purchases using Bitcoin, sending the cryptocurrency 15% lower at one point. On twitter Musk said: ‘We are concerned about the rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel’. He did say that Tesla might accept other cryptocurrencies if they are much less energy intensive.

How much energy does mining Bitcoin use? Analysis by the University of Cambridge published in March suggests Bitcoin mining uses more than 121 Twh annually, which would rank it in the top 30 electricity consumers worldwide if it were a country. Indeed it's been reported that power demand from crypto farms in north western Georgia has been so high in recent years that rolling blackouts became the norm and equipment had to be confiscated by the state.