Analysts at Goldman Sachs Group Inc. (NYSE:GS) expect August's Consumer Price Index inflation report, which is set to be released on Thursday, to show a notable acceleration, driven by rising costs in categories ranging from travel and energy to sectors impacted by new tariffs.
Inflation To Come In Ahead of Estimates
In a research note, Goldman economists projected a 0.37% increase in headline CPI, slightly above the +0.3% consensus, citing “higher food (+0.35%) and energy (+0.6%) prices.” That would correspond to a year-over-year rate of 2.9%, according to a report by TheStreet.
Core CPI, which strips out volatile food and energy costs, is also expected to run hotter than consensus. “We expect a 0.36% increase in August core CPI (vs. +0.3% consensus), corresponding to a year-over-year rate of 3.13% (vs. +3.1% consensus),” the analysts said.
See Also: Fed Should Admit Its ‘Mistakes,’ Jefferies Analyst Says, Making A ‘Cogent’ Case For 75 Bps Rate Cut
The firm attributed the CPI reacceleration to four key drivers, starting with used car prices, which it says have surged 1.2%, owing to higher auction prices and reduced deal incentives. Followed by airline ticket prices, up 3% and car insurance premiums, up 0.4%.
Finally, the big factor driving inflation is the tariffs, with “higher prices for industries most affected by tariffs, including communication, household furnishings, and recreation.”
The research note states that this level of price increase is being widely seen as “manageable because of wage growth,” with hourly wages up 1.2% year-over-year in July, and weekly earnings were up 1.4%, according to the Bureau of Labor Statistics.
However, with layoffs rising and hiring slowing, the ability of wages to keep outpacing inflation could be tested, Goldman analysts say.
Rate Cuts Could Ignite Dangerous Asset Bubble
Fund manager and columnist Ruchir Sharma says that the Federal Reserve’s much-anticipated rate cut next could risk igniting a dangerous asset bubble.
“The Fed has never cut interest rates, let alone start an easing cycle, when financial conditions have been this easy,” he said, adding that “credit spreads [are] close to record lows” and “the stock market’s obviously very ebullient given the valuations.”
Economist Peter Schiff echoes similar views, saying that a rate cut could end up harming the labor market by leading to the weakening of the U.S. Dollar, driving up consumer prices, and pushing long-term interest rates even higher.
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