Multinational investment bank Goldman Sachs expects lowersignificant” of US inflation in 2023. After a year of economic difficulties, losses and historic declines, Goldman Sachs has declared that US inflation will decline in 2023.
The investment bank linked the coming inflation slowdown to easing supply chain constraints, lower wage growth and a spike in housing inflation.
According to Goldman Sachs economists, led by Jan Hatzius, the company expects the core PCE index to rise from 5.1% currently to 2.9% in December 2023. The economists added that the rise in the dollar and the drop in commodity prices would have an impact on inflation. Over the weekend, a member of the Board of Governors of the US Federal Reserve, Christian J. Waller, warned that the central bank could reduce the pace of rate increases at its next meeting. He added, however, that this action does not amount to a “softening” of its objective of reducing inflation.
Data compiled last week showed that US inflation fell more than expected in October. The statement showed inflation rose 7.7% last month, its slowest pace since the start of the year. In reaction to the lower growth rate, John Briggs of Natwest said:
“It certainly shows how lenient, worried, and willing the markets have been to run the CPI if you get some kind of help here. The Fed will slow and peak rather than continue to aggressively raise rates by 75 basis points.”
Specifically, Goldman Sachs analysts highlighted key points that could contribute to lower inflation in the United States by 2023. Economists mentioned that the effect of limiting the supply of goods could lessen. They predicted a decline from +0.7 percentage points currently to -0.4 percentage points by the end of next year. If that happens, it will represent nearly 50% of the decline in overall core inflation.
According to Goldman Sachs, the rebound in car and consumer goods stocks could also contribute to lower inflation next year. Automotive chip shipments were also up 42% from 2019 figures. In addition, housing inflation is expected to spike year-over-year, which is another reason to expect a lower core inflation. There are currently one million apartments under construction, leading to a rebound in rental vacancy. According to Goldman, vacancies will likely return to pre-pandemic levels in 2023.
In addition, analysts said slowing wage growth could reduce upward pressure on services inflation in the coming year. They predict that year-on-year wage growth will decline by 1.5 points to 4% next year, leading to lower inflation in labor-intensive service categories. Analysts wrote:
“Overall, we expect core consumer price inflation to decline significantly.”