Goldman Sachs: Sizing The Inflation Risks In A Reopening Boom

Goldman Sachs note that they "forecast core PCE inflation to peak at 2.4% in April - bolstered by the year-on-year comparison to the April 2020 lockdowns - and end the year at 2.0%. But how high could core inflation go if mass vaccination unleashes surging demand in virus-sensitive categories? In our baseline, a partial rebound in four particularly sensitive categories - air and ground transportation, hotels, and recreation admissions - will contribute nearly +0.5pp to the swing in core inflation this year. But if these price levels fully converge to the pre-crisis trend, core inflation would end the year at 2.1-2.2%, other things equal. In a scenario where consumer demand for travel and recreation overshoots enough to recoup the coronacrisis shortfall over the next three years, we estimate core inflation would average 2.25% in the second half of 2021 with a peak of 2.5% in November, though the impact would then fade in the first half of 2022."