Goldman's "Last Mile" Of Disinflation Will Be Brutal

[Ptarmigan]

Goldman's "Last Mile" Of Disinflation Will Be Brutal
https://www.zerohedge.com/markets/goldmans-last-mile-disinflation-will-be-brutal

Authored by Simon White, Bloomberg macro strategist,

Inflation is starting to re-emerge, at odds with Goldman Sachs' view that it is set to continue slowing through next year.

The signs are here already that price growth will revive in 2024, leaving the Federal Reserve’s next rate move more likely to be a hike after an extended pause.

“We don’t think the last mile of disinflation will be particularly hard”, according to Goldman’s 2024 Macro Outlook.

But that stands in contrast to a growing corpus of data showing that far from a smooth path back to core CPI of 2-2.5% next year for the G10 ex-Japan, inflation should start to reheat, eventually pulling the Fed and other central banks back to the fore with further hikes.

Getting inflation right remains the most important macro call. Markets are priced for a benign outcome, with CPI fixing swaps in the US and Europe expecting a steady decline in headline price growth to 2-2.5% over the next 12 months.

Inflation has dropped or has it really?

But the coming months are likely to see increasing volatility. Inflation lags growth, and before it shows unequivocal signs it is rising we are likely to see further signs of weaker growth, deepening expectations of rate cuts next year.

The US economy should avoid an NBER recession, while Europe and the UK may also manage to skirt full-blown economic contractions. But as it becomes clearer inflation is returning, a rate hike - not a cut - is likely to be next move of the Fed, ECB and perhaps even the BOE. Stocks and bonds will face downside risk from a realization that rates may have to remain persistently elevated.

There are at least three areas where data is already showing inflation will soon re-accelerate:

Persistently large fiscal deficits are fueling corporate profits, which since the pandemic are now the dominant driver of corporate prices

A re-acceleration in goods inflation reinforcing still-elevated services inflation

Rising price growth in China that will increasingly add to global inflation pressures

[Eupher]

Inflation has dropped? Not according to my grocery bill. If it goes any higher, I may wind up eating beans and cornbread. 

[ExGeeEye]

Inflation has dropped? Not according to my grocery bill. If it goes any higher, I may wind up eating beans and cornbread. 

Inflation is the rate of increase in prices.

If it could be pushed to zero, prices would remain high, because they were pushed that high by prior inflation.

The only economic conditions that I know of that would result in price reduction are increased supply, or reduced demand.

A third option is wage increase, which is hard to accomplish because it ordinarily isn't profitable.  Labor, after all, is a "cost center" that is entirely the fault of the peasantry "human resources".  (Intended to be both truthful and sarcastic)