Goldman gives short inflation forecasts that, if fulfilled, can make stocks very nervous

In this recent paper they give some forecasts that, as they are fulfilled, we will see how the market takes it

We translate the key quote:

Core inflation for the PCE stood at 1.41% year-on-year through February and core CPI inflation stood at 1.28% through February, and other measures of the trend in core inflation also remain weak.

Year-on-year inflation is expected to rise sharply in the coming months, largely driven by base effects. We expect the underlying PCE to peak at 2.31% in April and the overall PCE to peak at 2.90% in May. We expect the underlying CPI to peak at 2.26% and the headline CPI to peak at 3.66%, both in May.

Be careful with this … the underlying figures for both the PCE, which is what the FED and the CPI look at the most, well, they are high, but they can be assumed without major problems, but beware of the psychological effect of the head of the general CPI if they get it right and it comes out. in the month of June the figure for May is 3.66%. You can imagine the newspaper headlines that would undoubtedly be: The Fed has lost control of inflation. That’s clearer than water.

Of course, Goldman hopes that after that rebound, the rest of the year will decline rapidly, this is exactly what they say:

GS inflation forecast: We forecast core PCE inflation of 1.95% at end-2021,
2.00% at end-2022, 2.10% at end-2023, and 2.20% at end-2024

In other words, 1.95% of the underlying PCE by the end of the year. 2% by the end of the following year. And little variation even in late 2024.

Forecasts are reflected in this graph (green line)

The problem will be that when the rebound arrives, no matter how much forecast there is that it will go down again, the market will get very nervous, in case the forecasts fail and inflation gets out of control and more with the very low credibility that is it has beaten the Fed or at least that is what the market thinks.

Here’s your full forecast chart