Goldman Sachs expects June CPI to show core inflation below consensus

Investing.com -- Goldman Sachs economists forecast a 0.17% month-over-month increase in core CPI for June, slightly below the consensus estimate, with headline CPI expected to decline 0.11% month-over-month. The firm said Tuesday's report will be a critical input for Federal Reserve policy decisions.

Federal Reserve Governor Waller tied the possibility of near-term policy tightening to a strong core inflation reading in his speech Monday. The Fed's focus has shifted to demand pressures from the artificial intelligence boom and the durability of the inflationary impact from the energy supply shock, following recent jobs data that points to labor market stabilization.

Goldman Sachs' softer core forecast reflects continued steady disinflation in rent and owners' equivalent rent, disinflation in hotel prices as the World Cup effect fades, lower jet fuel inflation due to falling energy prices, and weak auto inflation. The forecast aligns with a 0.24% increase in core personal consumption expenditures prices.

The computer software and accessories component warrants attention, having risen 14.5% year-over-year through May. While it carries only a 0.03% weight in the CPI basket, it feeds directly into PCE with a 1.1% weight, helping explain part of the current PCE-CPI difference.

If the 17-basis-point core forecast materializes, it would continue the trend of undershoots to Bloomberg consensus over the past year. This could lead to an unwind in near-term rate hike pricing, consistent with Goldman Sachs' call for a hold at the July Federal Open Market Committee meeting, and slight downward pressure on the dollar.

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