Core Insights - Goldman Sachs reports a potential turning point in U.S. core goods inflation, with tariff cost transmission effects diminishing, leading to an overall downward trend in inflation expected to continue towards target levels by 2026 [1][8] - The report estimates that the transmission of tariff costs to consumer prices has reached 62% after ten months of implementation, predicting core goods inflation to drop significantly from 1.97% in December 2025 to 0.08% in December 2026 [1][3] Current Inflation Trends - Inflation pressures are easing but remain above the Federal Reserve's 2% target, with the core PCE price index rising to 3.00% year-on-year in December 2025, down from a peak of 5.61% [2] - The core CPI decreased to 2.51% year-on-year in January, significantly lower than its historical peak of 6.62% [2] Tariff Impact on Inflation - The report emphasizes that the impact of tariffs on goods prices has largely been realized, which will be a key driver for declining inflation [3] - Tariffs currently contribute approximately 0.7 percentage points to core PCE year-on-year inflation, expected to reduce to only 0.1 percentage points by the end of 2026 [3] Service Sector Inflation - Core service inflation is declining at a slower pace, which is a major factor hindering a rapid return to overall inflation targets [4] - The core service PCE price index, excluding housing, showed a year-on-year increase of 3.3% in December, still above pre-pandemic levels [4] Housing Inflation Trends - Rental growth for new leases is slowing, with January showing only a 0.2% year-on-year increase, down from 0.5% in December [5] - This trend is expected to continue impacting official CPI rental data, leading to a gradual reduction in housing inflation contributions by 2026 [5] Labor Market Dynamics - The labor market is cooling, supporting the downward trend in inflation, with wage growth expectations declining [6] - The Goldman Sachs wage tracker indicated a year-on-year increase of 3.5% in Q4, with expectations further dropping to 3.2% in January [6] Inflation Expectations - Recent surveys indicate a marginal improvement in inflation expectations among residents and markets, reinforcing the credibility of the inflation decline [7] - One-year inflation expectations fell to 3.4% in February, while five to ten-year expectations remained stable at around 3.3% [7] Future Inflation Projections - Goldman Sachs predicts core PCE inflation to decrease from 3.0% in December 2025 to 2.2% by December 2026, with core CPI expected to drop to 2.1% [8] - The significant decline in core goods inflation and moderate decrease in housing inflation are expected to create more room for overall inflation to align with targets [8]

Core Viewpoint - The Bank of Japan indicates that rising food prices may lead to a second-round effect on core CPI inflation by altering household sentiment and inflation expectations [1] Group 1 - The Bank of Japan is concerned about the impact of food price increases on consumer behavior and overall inflation [1] - There is a potential for food price inflation to influence broader economic indicators, particularly core CPI [1] - The central bank is monitoring these developments closely as they could affect monetary policy decisions in the future [1]

Core Viewpoint - The article discusses the inflation trends in May, highlighting a slight decrease in CPI and a more significant drop in PPI, with implications for future economic conditions and policy responses [1][10]. Group 1: CPI Inflation - May CPI inflation was reported at -0.1% year-on-year, matching the previous value and exceeding market expectations of -0.2% [1][2]. - Energy prices have significantly dragged down CPI inflation, while core CPI showed slight upward support [2][6]. - Food prices experienced a mild decline, with a 0.2% drop month-on-month, which is less than the average decline of 1.4% over the past five years [5]. - Core CPI inflation rose slightly by 0.1 percentage points to 0.6% year-on-year, although month-on-month momentum has weakened [6][7]. - Service prices remained resilient, with travel prices increasing by 0.8% month-on-month, surpassing the five-year average of 0.2% [6]. Group 2: PPI Inflation - May PPI inflation was reported at -3.3% year-on-year, a decrease of 0.6 percentage points from the previous month, and -0.4% month-on-month, which is weaker than the historical average since 2017 [10][12]. - The decline in PPI is attributed to weak oil prices affecting the entire industrial chain and a slowdown in the construction sector due to adverse weather conditions [10][12]. - Despite the overall decline, there are signs of recovery in prices related to exports and new growth sectors, with textile prices narrowing their decline and some electronic prices turning positive [12][15]. Group 3: Forward Outlook - Looking ahead, energy prices are expected to remain weak, with Brent crude oil projected to fluctuate between $60 and $70 [9]. - The overall pace of CPI recovery is anticipated to be slow, influenced by policies aimed at boosting domestic demand and consumption [16]. - For the second quarter, CPI inflation is expected to stabilize around 0%, while PPI inflation may drop to approximately -3.0% [16].