Goldman Sachs Sees Lower US Inflation Ahead

Goldman Sachs and HSBC have released forecasts for the upcoming US inflation data release. Goldman expects core CPI to rise by 0.19% month-on-month in July, lower than market expectations of 0.2%. The overall CPI is expected to increase by only 0.05%, dragged down by falling retail gasoline prices. This would be significantly below market consensus.

HSBC multi-asset strategist Duncan Toms points out that the June inflation data has already shown an 'unexpected dovish trend'. If the July data comes in weaker than expected, it will likely serve as a catalyst for cooling Federal Reserve rate hike expectations. This could lead to a bull steepening of the U.S. Treasury yield curve and create a strong Goldilocks environment where almost all asset classes see broad-based gains.

Goldman's report highlights three key components: auto, housing, and travel prices. The auto sector is expected to show mixed performance, with used car prices rising 0.5% month-on-month but new car prices remaining flat. Housing inflation is expected to remain moderate, with Owners' Equivalent Rent (OER) increasing by 0.23% month-on-month.

However, the core PCE, which reflects second-quarter equity market gains, is expected to rise significantly higher than core CPI at 0.26% month-on-month. This discrepancy may be due in part to methodological adjustments that will be made at the end of September, which could bring additional volatility to core PCE readings.