Goldman Sachs Projects Below-Consensus Core Inflation for June CPI Report

Goldman Sachs economists are forecasting a slowdown in underlying U.S. inflation for June, projecting a core Consumer Price Index (CPI) reading below the market consensus. The firm anticipates this key inflation report will be a critical factor in the Federal Reserve's upcoming policy decisions.

The Forecast in Detail

In a note to clients, Goldman Sachs said it expects core CPI, which excludes volatile food and energy prices, to have increased by 0.17% month-over-month in June. The firm also projects that the headline CPI will show a month-over-month decline of 0.11%.

The bank's forecast for a softer core reading is based on several factors:

• Continued disinflation in rent and owners' equivalent rent.
• A drop in hotel prices as temporary effects from the World Cup fade.
• Lower inflation for jet fuel, reflecting falling energy costs.
• Weakness in auto inflation.

Goldman Sachs noted this forecast is consistent with a 0.24% increase in core personal consumption expenditures (PCE) prices, the Fed's preferred inflation gauge.

Implications for Federal Reserve Policy

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The June CPI data is expected to heavily influence the Federal Open Market Committee's (FOMC) next move. The report's significance was highlighted by Federal Reserve Governor Christopher Waller, who on Monday tied the possibility of near-term policy tightening to a strong core inflation reading.

According to Goldman Sachs, the Fed's attention has shifted to gauging demand pressures, including those from the artificial intelligence boom, and the lasting inflationary impact from the earlier energy supply shock. This comes as recent jobs data suggests a stabilization in the labor market.

Potential Market Impact

Should the core CPI print come in at Goldman's 0.17% forecast, it would continue a trend of inflation data coming in below Bloomberg consensus estimates over the past year. Such a result could lead markets to price out the probability of a near-term interest rate hike.

This outcome would align with Goldman Sachs' own call for the FOMC to hold rates steady at its July meeting. A softer inflation reading could also exert slight downward pressure on the U.S. dollar, the firm's economists added.