Overview
Goldman Sachs has provided a preview of the upcoming Consumer Price Index (CPI) report for February, indicating a gradual cooling of inflation in the U.S. The report is expected to show easing core inflation, particularly in the automotive and shelter sectors, which could alleviate pressure on bond yields and support risk assets.
Key Forecasts
- Core CPI: Expected to rise by 0.17% month-on-month, below the consensus estimate of 0.2%. This would translate to a year-on-year core inflation rate of approximately 2.42%, also below the 2.5% consensus.
- Headline CPI: Projected to increase by 0.18% month-on-month, again below market expectations.
Factors Influencing CPI
Goldman Sachs attributes the anticipated softer CPI reading to several key trends:
- Automotive Prices: A decline in used car prices by 0.5% and a decrease in car insurance costs by 0.3% are expected to contribute to lower inflation pressures.
- Airfares: After a significant increase of 6.5% in January, airfare prices are expected to stabilize in February.
- Shelter Inflation: A moderation in rent and owners’ equivalent rent is forecasted, with expected monthly increases of around 0.22% for each component, indicating a slowdown in housing inflation.
Potential Inflation Pressures
Despite the expected cooling, Goldman Sachs warns that trade policies, particularly tariffs, could introduce new inflationary pressures. Tariffs may exert upward pressure on certain goods, especially in sectors like recreation that are sensitive to import costs, potentially adding about 0.05 percentage points to the inflation reading.
Market Implications
The upcoming CPI report is crucial for market participants as it will provide insights into the trajectory of U.S. inflation and the Federal Reserve's policy direction. A confirmation of cooling inflation could reinforce expectations for a cautious approach from the Fed regarding further policy tightening.