Goldman Sachs Predicts Extended Disinflation: These 3 Consumer Categories Could See Significant Price Drops

Goldman Sachs believes that inflationary pressures are now a thing of the past and expects a continued downward trend in the consumer price index (CPI) inflation.

In a note penned by analysts Manuel Abacasis and Spencer Hill, the investment firm predicts a larger-than-expected drop in core inflation – excluding energy and food – for June, with a monthly increase of 0.2% and an annual increase of 4.9%.

These estimates fall below the current consensus among economists, who anticipate a monthly core inflation of 0.3% and an annual increase of 5%. On the other hand, the estimates for headline inflation align with market expectations of 0.3% monthly and 3.1% annual increases.

Chart: Inflation Is On A Declining Path

Inflation Expected To Slow Down to 3% by 2024

Looking ahead, average monthly core CPI inflation is projected to remain within the range of 0.2-0.3% in the coming months. Goldman Sachs forecasts year-over-year core CPI inflation of 3.8% by December 2023 and 3.0% by December 2024.

According to Goldman Sachs’ analysts, the following factors are presently the primary contributors to disinflation.

1) Prices for Used Cars Falling

Goldman Sachs predicts a 1.2% decrease in used car prices in June, driven by lower prices at used car auctions. Year-over-year, used car prices are expected to drop by 11% in December 2023, attributed to normalized auto production, increased inventories, and higher incentives for new vehicles.

The following is a list of companies operating in the second-hand car market, which may experience margin pressures due to lower auction prices:

CarMax Inc. KMX
AutoNation Inc. AN
Copart Inc. CPRT
Carvana Co. CVNA
Lithia Motors Inc. LAD

2) Negative Seasonality Impacting Travel Spending

Goldman Sachs expects negative residual seasonality to affect travel-related categories this month, as the CPI seasonal factors are likely overadjusting for price rebounds following pandemic lockdowns.

The investment bank projects a 2% decline in both hotel and public transportation prices for this month.

3) Gradual Decline in Shelter Inflation

Goldman Sachs foresees a moderate slowdown in shelter inflation. Analysts believe that more than half of the premium on new rental units, which emerged during the pandemic, has been eliminated.

The investment firm predicts that shelter inflation will gradually decline to an annualized rate of 5% by December 2023, down from the peak monthly annualized rate of over 10% in late 2022.

Here are some U.S. stocks involved in the house rental market: