According to Goldman Sachs economist Megan Peters, the U.S. actually has fewer persistent inflationary problems than the rest of the world, despite overall data suggesting otherwise.
Core inflation is "close to target levels in most countries, but remains significantly higher in the U.S., particularly in PCE metrics," Peters noted. At first glance, this makes the U.S. a "global exception, where there is still a noticeable inflation problem." However, a more detailed analysis of the structure of inflation baskets paints a different picture. To analyze the discrepancies, Goldman broke down core inflation into three components: core goods, services excluding housing, and inflation in the housing sector. Peters found that inflation has returned to long-term trends in both emerging markets and developed countries outside the U.S., but remains elevated in the U.S. – about 3 percentage points above the pre-pandemic trend in PCE metrics.
The economist explained the entire overshoot in goods in the U.S. by two temporary, country-specific factors – tariffs and the "distorted impact of AI." According to Peters, tariffs add 2.4 percentage points to annual core PCE inflation for goods, and this effect is expected to largely dissipate in the second half of next year. It is also noted that the rise in memory prices, driven by the development of AI, adds about 1 percentage point to core goods inflation through the "software and accessories" category. Peters expects this distortion to weaken by 2027 as price pressures in the memory market stabilize and the methodology for weighting by the U.S. Bureau of Economic Analysis is adjusted.
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