China CPI Records Two-Year High: Potential Impact on Cryptocurrencies

Financial figures recently released in China by the country’s National Bureau of Statistics (NBS) reflected some significant figures that would have an extended impact on different aspects of the financial industry. One of the flagship data that was released was the Consumer Price Index (CPI). The CPI measures the average change in prices of consumer goods paid by urban consumers on a basket of such goods.

The China CPI for July 2022 was recorded as 2.7%, representing the highest that it has been in 2 years. Apart from the CPI, other financial figures that were released include the factory-gate inflation which registered a 17-month low as Producers Price Index (PPI) rose by 4.2%, year-on-year.

In the report by the NBS, the major consumer goods that led to the recent inflation in prices include pork and fresh vegetables, among other food items, not neglecting the seasonal factors that also contribute to the rise in price. This time around, the records reveal that fresh fruits and vegetable prices rose by 16.9% and 12.9% respectively in comparison to what their prices were one year ago.

Despite the two-year record for China’s CPI, it still fell below what was forecasted. The predicted figure ahead of the report was 2.9%, hence the actual figure of 2.7% arrives with a bitter-sweet effect that could generate some mixed feelings in market sentiments.

Already, there is an existing target set by the government of China to keep annual consumer inflation within the 3% range. In an earlier statement, while highlighting the need to keep the 2022 price rise under 3.5%, Li Keqiang, Premier of the State Council of the People’s Republic of China, last month gave assurances on the government’s efforts toward achieving such.

Despite China’s seeming withdrawal from the cryptocurrency industry, the impact of economic indices on the country is still reflected in the industry. Many investors with Chinese interests who do not live within the geographical space that is covered by the ban on cryptocurrencies are still connected to both the Chinese mainstream markets and the independent cryptocurrency markets.

Apart from this category of investors, the activities of existing underground participants from within China would also reflect directly on the industry, having a direct impact on cryptocurrency prices.

In the early days of Bitcoin and cryptocurrencies, the independent marketplace served as an alternative for mainstream investors. Digital assets were used to hedge against unfavorable mainstream market situations. Over the years, there has been a change in market dynamics, especially with the influx of institutional investors into the crypto industry in the past few years.

Instead of the seesaw pattern that used to be experienced in the past, there is the possibility of the crypto market moving in tandem with mainstream indices. Hence, while interpreting the figures and their impact on the cryptocurrency market, the usual details that control the markets must be considered.

In considering such details, the significance of the forecasted CPI and actual CPI figures comes into play. In this case, while the market expected a worse figure of 2.9%, a lesser figure of 2.7% was released. The implication of this could see an immediate positive response on prices. In relative terms, this could be considered by investors as a positive development, hence an immediate bullish sentiment for the market.

Also, considering other factors that suggest the coming to an end of the bearish trend of the crypto market, the initial bullish sentiments could catalyze a more prolonged trend. This would depend on several other unrelated factors that control the market, including developments from other major economies, regulations and intra-industry technical modifications.