The U.S. Consumer Price Index (CPI) is expected to rise by 4.2% year-on-year in May, marking the highest level since early 2021, according to Reuters, that would represent a significant increase from April’s 3.8%, and it would push inflation well above the Federal Reserve’s 2% target. If the data confirms these expectations. It could intensify speculation about further interest rate hikes, which may weigh on the price of Bitcoin and other cryptocurrencies.

War-Driven Energy Prices and Inflationary Pressures

CNN reports that the current inflation surge is partly attributed to the ongoing conflict between the U.S. and Iran, which has driven up energy prices — Although the war has not lasted as long as feared, the ripple effects,such as increased costs for airfares, transportation, and food,have already taken hold. In April alone, fruit and vegetable prices rose by 2.3%, the highest monthly gain since 2010, with tomato prices increasing by more than 15% for two consecutive months.

Despite the war-related shocks, energy prices have cooled somewhat. The CBOE Oil Volatility Index (OVX) has returned to pre-war levels, and WTI crude oil has dropped 16% since its peak in April, trading near $87 a barrel. However, the broader affordability crisis remains. If CPI rises by 4.2%, real wages,adjusted for inflation,are expected to decline by 0.8% annually, according to FactSet.

Global Central Banks Consider Rate Hikes

Across the Atlantic, the European Central Bank (ECB) is also preparing for a rate hike. According to FAZ, the ECB is expected to increase the main interest rate from 2.0% to 2.25% in June. Karsten Junius, Chief Economist at Bank J. Safra Sarasin, stated that the ECB will show its determination to prevent rising inflation expectations. Marco Wagner of Commerzbank noted that markets are currently pricing in three rate hikes for the Eurozone in 2024, although some economists, including those from Deutsche Bank, consider this expectation overstated.

Ulrich Kater, Chief Economist at DekaBank, emphasized that if the ECB communicates that energy price pressures are persisting in inflation forecasts, it could signal a tighter monetary policy path. The ECB’s communication strategy will be closely watched, particularly during the press conference following the June rate decision.

Bitcoin’s Vulnerability to Inflationary Signals

Bitcoin, the largest cryptocurrency, is expected to be especially sensitive to the May CPI data. According to CoinDesk, the price of Bitcoin is already under pressure due to fears of a rate hike, and a broader-than-expected inflation rise,particularly one that extends beyond the energy sector,could push BTC below $60,000. The market is watching not just the headline number, but the underlying trends, particularly whether inflation is spreading across multiple sectors or remains concentrated in energy.

According to MUFG Research, if core inflation remains within expectations—0.3% for the month and 2.9% annually,then the impact on financial markets may be limited. But if inflation continues to exceed projections, it could trigger further selling pressure in both equities and crypto markets. The key, as several analysts note, is how long the inflationary pressures persist and whether they are transitory or embedded into the broader economy.

Meanwhile, Manager Magazin argues that even if a war-ending deal between the U.S. and Iran leads to a decline in oil prices, the broader inflationary effects will persist. Infrastructure damage, increased risk premiums, and the need to rebuild oil reserves will keep energy prices elevated for some time. Also, the price spikes in other goods,such as kerosine, natural gas, and fertilizers,have been more severe and are slower to normalize, adding to the inflationary burden, especially in Europe.