Goldman Sachs sees significant decline in US inflation next year

Use Spotify? Access BizNews podcasts here..Use Apple Podcasts? Access BizNews podcasts here..___STEADY_PAYWALL___.By Enda Curran.(Bloomberg) — Goldman Sachs Group Inc. economists expect a significant easing of US inflation in 2023 reflecting softening supply chain problems, a peak in shelter inflation and slower wage growth..The US lender expects the core PCE measure to decline to 2.9% by December 2023 from 5.1% currently, economists led by Jan Hatzius wrote in a research note, with weaker commodity prices and a stronger dollar also to weigh on inflation..Data last week pointed to a cooling in US consumer prices. At 7.7%, inflation in October rose at the slowest pace since January..Key points in Goldman's forecasts are as follows:.The contribution of supply-constrained goods categories to core inflation will swing negative, Goldman forecasts, dropping from a boost of +0.6 percentage point currently to -0.4 percentage point by late 2023, and accounting for nearly half of the slowdown in overall core inflationSupply chain disruptions and shipping congestion eased significantly in 2022, and inventories of cars and consumer goods have rebounded from extremely depressed levels. The supply of semiconductors in particular has improved dramatically, with automotive microchip shipments now 42% above 2019Goldman's second reason to expect lower core inflation is a peak in year-over-year shelter inflation, which they expect in the spring. Strong demand for rental units has already catalyzed a supply response: 1 million apartments are under construction or permitted, the largest pipeline since 1974. Rental vacancies rates are starting to rebound as a result and are likely to return to pre-pandemic rates next year, according to Goldman.For its third reason, Goldman expects slower wage growth to reduce upward pressure on services inflation by late 2023. Labor market rebalancing is already lowering wage growth, particularly in sectors with large declines in the jobs-workers gap such as retail and leisure. They expect year-on-year wage growth to fall by 1.5pp to 4% by late 2023, helping to slow inflation in labor-intensive services categories."All in, we forecast core PCE inflation to fall significantly," the Goldman economists wrote..Read also:.Goldman Sachs: US equity bottom conditions are not there yetWill Jerome Powell's inflation crusade get as ugly as Paul Volcker's?Inflation, fear not. Central bankers may be slow, but the job may get done on time.

Goldman Sachs sees significant decline in US inflation next year

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