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Ahead of the latest CPI inflation print, which came in slightly hotter than what most economists had predicted, Goldman Sachs issued a note predicting that core inflation will eventually resume its decline.
According to the February CPI report, core CPI increased 0.4% compared to the +0.3% consensus figure and the +0.4% prior reading. Also, Y/Y, core inflation gained 3.8% versus the +3.7% expected and +3.9% prior levels.
On Monday, prior to the day’s release on Tuesday morning, Goldman Sachs stated: “Our core market views are still that risk assets will continue to trend higher, supported by a mix of solid US growth and slowing global inflation.”
“We think that the positive macro backdrop is still enough to dominate rich valuations. Our economics team expects US core inflation to resume its decline, while the US growth backdrop should remain supportive and there are signs that non-US growth may be picking up too,” the firm added.
The investment bank went on to say that the biggest risks to the idea of a soft landing is the notion of higher-than-expected inflation, which would make central banks more unwilling to ease rates. The possibility of significant deterioration in growth would represent another potential risk, Goldman outlined.
See the below illustration Goldman Sachs provided which outlines the potential impacts in market prices from an inflation shock.
The above inflation shock model signals to markets those equities (NYSEARCA:SPY), (NYSEARCA:IWM), (NASDAQ:QQQ) will experience downside moves.
