Goldman Sachs anticipates that U S core CPI inflation for January will be higher than market expectations due to increases in housing and automobile prices. The investment bank warns that escalating trade tariffs may counteract any disinflationary trends in the upcoming months.

Key CPI Forecasts from Goldman Sachs

January Core CPI
Expected to increase 0.34% month-over-month compared to consensus of 0.3%.
Year-over-year core CPI projected at 3.19% against consensus of 3.1%.

January Headline CPI
Expected to rise 0.36% month-over-month, with substantial contributions from higher food and energy costs.

Inflation Projections for 2025
Core CPI: 2.8% by year-end 2025.
PCE Inflation (preferred measure by Fed): 2.6% by end of 2025.

Trade Tariffs and Inflation Risks

According to Goldman Sachs, tariffs are poised to become a significant driver of inflation. The investment bank highlighted that:

• New 25% tariffs on steel and aluminum imports may escalate producer costs.
• Current 10% tariffs on Chinese goods could lead to increased consumer prices.
• Trump has hinted at potential additional tariffs, raising inflationary pressures further.

Ultimately, importers will bear these new tariffs burden, potentially slowing disinflation and maintaining elevated inflation levels for an extended period.

Market Implications

For Investors & Traders
Higher-than-expected inflation rates may result in delayed Fed rate cuts, leading to market volatility.
Increased tariffs could exert pressure on corporate earnings, especially for import-dependent sectors. Investors may observe elevated gold prices as a hedge against inflation risks.

For Policymakers & Businesses
The housing and auto sectors are critical inflation contributors; thus, the Federal Reserve might need to uphold a hawkish position. Tariffs could disrupt supply chains, impacting manufacturing and consumer goods sectors. Additionally, energy and food price movements remain crucial indicators for broader inflation trends.

Final Thoughts

With sticky inflation expectations, rising tariffs adding to price pressures, and an uncertain Fed policy landscape, the markets are bracing for a turbulent period. Investors are set to scrutinize the forthcoming official CPI report, which plays a pivotal role in shaping rate expectations and asset prices.