Goldman Sachs sees U.S. core PCE halving by end of 2022

(Reuters) – Goldman Sachs has forecast growth in the U.S. core personal consumption expenditures (PCE) index to nearly halve by the end of 2022, as the U.S. bank expects a surge in commodity prices and supply-chain constraints to ease after causing near-term price spikes.

Economists at Goldman Sachs expect the core PCE index – the Federal Reserve’s preferred inflation measure – to fall to 2.3% by end of next year from 4.4% at the close of 2021, as demand for goods should moderate with the peak stay-at-home and stimulus effects fading.

While current inflation overshoot has been “startling”, they attribute it entirely to a surge in durable goods prices, driven by severe and persistent supply and demand imbalances.

“The current inflation surge will get worse this winter before it gets better,” Goldman’s chief economist Jan Hatzius said in a note.

“We do expect persistent inflationary pressure from faster growth of wages and rents, but only enough to keep inflation moderately above 2%, in line with the Fed’s goal under its new framework.”

The PCE index, excluding the volatile food and energy component, climbed 0.2% in September, following a 0.3% rise in August. In the 12 months through September, the so-called core PCE price index increased 3.6% for a fourth straight month.

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Shailesh Kuber)