Daily Brief: US Inflation Is At A 13-Year High, But That Might Be The Worst Of It

Daily Brief: US Inflation Is At A 13-Year High, But That Might Be The Worst Of It

over 2 years ago3 mins

Fresh data out Wednesday revealed the most widely watched US inflation rate refused to budge from a 13-year high last month.

What does this mean?

With demand rebounding, supply bottlenecks continuing, and the country’s government pumping trillions of dollars into the American economy, consumer prices were 5.4% higher in July 2021 than they were in July 2020. That was a slightly bigger rise than economists had anticipated – and unchanged from the previous month’s inflation rate, the largest such surge since 2008.

US inflation

Looking behind the headline figures, however, the “core” US inflation measure – which excludes unstable food and energy costs – eased slightly to 4.3% last month, compared to 4.5% in June. Price rises also relaxed on a month-on-month basis: goods and services were 0.5% more expensive in July than a month before, down from June’s chunky 0.9% gain.

Core inflation

Why should I care?

For markets: Flattening the curve.

Taken together, the figures suggest that US inflation may have peaked – potentially vindicating the Federal Reserve’s view that recent upticks are only temporary and that pandemic-related shortages will eventually evaporate. That could leave America’s central bank in little hurry to increase interest rates or start scaling back its $120 billion-a-month bond-buying program. Since the latter would remove a major source of demand for US government bonds, relieved investors bought more of them on Wednesday – pushing their yields, which move inversely to prices, lower.

Bond yields

The bigger picture: Let ‘er rip.

Whether inflation has indeed peaked remains hotly debated. Government support has played a major role in recent price rises, and there may be much more to come: the US Senate passed a $3.5 trillion budget blueprint on Wednesday, just a day after approving a roughly $1 trillion infrastructure spending package. That brings both plans one step closer to reality – along with their injection of near-unprecedented levels of government funding into the American economy.

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Coinbase Beat Expectations – But Not Without A Warning

Coinbase image

Coinbase’s sophomore set of earnings as a public company surpassed analysts’ expectations this week – but the crypto exchange says it’ll suffer as token prices stabilize.

What does this mean?

Coinbase saw its revenue surge more than tenfold last quarter compared to the same time last year, totaling an impressive $2 billion. And no wonder: crypto markets experienced some of their wildest swings in a while last quarter, with investors tripping over themselves to trade fast-moving digital currencies on Coinbase’s platform. So many investors, in fact, that the company’s monthly active users were up 44% on the quarter before, reaching nearly 9 million. But the fun can’t last forever: Coinbase warned that declining crypto price volatility this quarter has begun to cause a drop in user activity that’ll likely hit its future financials.

Coinbase trading volume

Why should I care?

The bigger picture: Try not to concentrate on it.

Coinbase’s $2 billion quarterly revenue is even more impressive when you consider that the nine-year-old crypto kid took in more cash than established marketplace operators like CME Group and Intercontinental Exchange. But size isn’t everything. A huge chunk of Coinbase’s revenue comes from trading in a single cryptocurrency: bitcoin. That makes its sales a lot riskier than traditional exchanges where revenue is more balanced across trading in many different assets.

Coinbase and bitcoin tend to trade in tandem

Zooming out: The Sword of Satoshi.

Crypto markets face constant threats from new government regulation and malicious hacks – and this week brought examples of both. The US president’s proposed infrastructure bill, which is now through the Senate, promises to impose stricter tax reporting requirements on crypto brokers. Late on Tuesday, meanwhile, it emerged that cyberpunks had pulled off what could be decentralized finance’s biggest-ever heist. Around $600 million worth of cryptocurrency was stolen from users of the cross-blockchain Poly Network platform – but in a strange twist, the hackers promptly returned roughly half of their loot on Wednesday.

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