A surge in consumer prices has started to impact a wider array of goods and services than has been typical in past inflationary periods, according to Goldman.
The unexpected surge in consumer prices looks more concerning now that it is affecting more goods and services.
In a Tuesday evening note to clients, Goldman's chief economist Jan Hatzius said recent inflation looks more concerning because of the extent to which prices have risen and the growing breadth of core inflation, which excludes volatile food and energy prices.
The core consumer price index, which tracks the prices of everything from apparel and cars to rent and medical care, has seen 4% annual inflation since last July, compared to only 19% of the basket in 2019.
The large price increases have been increasingly broad-based, expanding beyond those and driven overwhelmingly by extreme moves in a few supply-constrained categories, as was the case for much of the past year.
Goldman says the breadth indicates core inflation, which is already at the highest level in nearly 40 years, could rise another 0.5 percentage points over the next six months before taking into account additional upward pressure from wage.
Hatzius pointed out that rising inflation in the late 1970s coincided with long- lasting runaway inflation, while shorter-lived bouts in 2000 and 2006 did not.
The Federal Reserve is expected to hike interest rates as soon as next month in order to combat rising prices, a move that has curbed inflation in the past, but also has repercussions.
Trillions of dollars in unprecedented government spending helped keep the economy afloat during the pandemic, but high inflation has rattled the market in recent months. The benchmark S&P 500 index is down more than 9% so far in 2022. Bank of America and Morgan Stanley are among the Wall Street investment banks that have warned about inflation and the conflict between Russia and Ukraine. The International Monetary Fund lowered its growth projections for the US last month due to the Fed's removal of the pandemic-era stimulus as a risk to the economy.
The Labor Department said consumer prices rose 7.5% in the 12 months ending in January, the largest annual increase since 1982.
When the central bank ends its next two-day policy meeting on March 17 officials are expected to announce if they will raise interest rates. The Fed will announce seven consecutive 25-basis-point hikes at each of the remaining monetary policy meetings this year, more than double the three hikes many officials have forecast.
Inflation hit a nearly 40-year high in January.
The threat of war fuels, surging aluminum, and gold prices is not just oil.
How Aggressive Could Rate Hikes Be? (Forbes)
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