The Consumer Price Index is closely watched by bitcoin investors, who see the cryptocurrency as a hedge against inflation.
The U.S. Department of Labor's consumer price index (CPI), the most widely used measure of inflation, rose to 7% year-on-year, beating economists' expectations, marking the the highest increase since June 6 and surpassed the 1982% increase in November.
Within minutes of the CPI report released by the Department of Labor's Bureau of Labor Statistics (BLS), bitcoin was trading at around $43,900, up 1,1%.
Many investors say that bitcoin can act as a hedge against inflation, because its supply is tightly controlled thanks to the blockchain's original programming.
But the US Federal Reserve's push to raise interest rates to tackle high inflation could make fixed-income assets like bonds more attractive and reduce the appeal of risky investments. risk on assets like stocks and cryptocurrencies.
Peter C. Earle, economist at the American Institute for Economic Research, told CoinDesk: “At this point, the ongoing policy debate will likely turn to whether the Fed has waited too long to react to rising prices.”
On Tuesday, Fed Chairman Jerome Powell appeared before the US Senate Banking Committee for his confirmation hearing, where he said inflation remained above the Fed's target.
Powell added that the Fed could raise interest rates if inflation continues at high levels and for longer than expected. Powell's hints of a rate hike in December sent bitcoin prices down.
Edward Moya, senior market analyst at online brokerage Oanda, said: “The path of inflation could spur faster rate hikes, and an earlier balance sheet contraction could cause near-term downside prices for risky assets like cryptocurrencies, but equities have may feel more pain.”
Moya says: “There is still a significant amount of money on the sidelines waiting to buy bitcoin, but many crypto traders are waiting to see the situation.”