Institutional Insights: Goldman Sachs On CPI & Market Reaction
Goldman Sachs 'expect a 0.23% increase in August core CPI (vs. 0.2% consensus), corresponding to a year-over-year rate of 3.17% (vs. 3.2% consensus);
• Our August core CPI forecast is above the +0.13% average pace of the last three months. The softer readings in recent months were aided by large declines in the airfares component—which declined 3.4% on average—and the used cars component— which declined 1.1% on average. In August, we expect a pickup in airfares (+1.5%)—reflecting a boost from residual seasonality—and a more moderate decline in used car prices (- 0.5%)—reflecting mixed auction prices.
• We highlight two additional key component-level trends we expect to see in this month’s report. 1) We expect another firm increase in car insurance prices, reflecting continued, albeit decelerating increases in premiums. 2) After last month’s outsized increase, we expect shelter inflation to moderate, with owners’ equivalent rent increasing 0.33% and primary rent increasing 0.29%.
• Going forward, we expect monthly core CPI inflation around 0.2% for the rest of the year.
In terms of the market’s reaction function, the desk’s view is that a soft print close to expectations is likely the best outcome: it will allow some event risk to pass and equity vol to settle slightly lower very near-term. Scenarios where the data is deemed too hot or too cold could introduce more uncertainty around the Fed’s path, or the current level of US growth.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!