• Altcoins like Toncoin, Compound, Maker, and Hedera Hashgraph jumped on Wednesday.

• The US published strong consumer inflation data as the CPI soared to 3.7%.

Cryptocurrency prices reacted differently to the latest US consumer inflation data. Toncoin’s TON token jumped by 10% while Compound, VeChain, Maker, and Aptos rose by over 9%. Bitcoin price remained comfortably above $25,000.

US inflation jumped in August

Crypto prices reacted mildly to the latest US inflation data. According to the statistics agency, the headline inflation jumped from 0.2% in July to 0.6% in August while core inflation rose to 0.3%. On a YoY basis, inflation rose by 3.7% while core CPI dropped to 4.3%.

Gasoline was the main cause of this inflation. Data by AAA shows that the average gasoline price has surged to over $3.85. This trend will likely continue rising as the price of Brent is now comfortably above $92 and WTI has jumped above $89.

Therefore, analysts believe that the Federal reserve will likely deliver another 0.25% rate hike in its September meeting. Before the report, most analysts were expecting the Fed to leave rates unchanged on Wednesday next week. In a note after the inflation data, analysts at ING wrote that:

“When measured to three decimal places, the 0.278% core print doesn’t look so bad. It is not a terrible miss, but markets will likely interpret it as showing the Fed can’t completely relax.”

Implications for cryptocurrencies

The latest inflation numbers have an implication for altcoins like Maker and Compound. For starters, these two are some of the biggest players in the DeFi industry. Unlike Uniswap and PancakeSwap, these platforms focus on lending and investing. 

People deposit their tokens and expect a return on their investments. The challenge is that the interest paid in these platforms is not competitive in the current environment. For example, the net earn APY of USDC  in Compound is 3.62%. 

In contrast, money market funds in the US are paying over 5%. Therefore, if the Fed continues its tightening, we could see more people move to money market funds and certificates for deposits (CDs).

All this explains why the total value locked (TVL) in these ecosystems has dropped sharply since the Fed started its rate hikes and quantitative tightening policy.

Rising inflation is also bearish for other cryptocurrencies like Bitcoin, Toncoin, and Ethereum, as I wrote here. In Toncoin’s case, the coin jumped after Telegram endorsed it.