The United States may actually have less of a persistent inflation problem than the rest of the world, despite top-line data suggesting the opposite, according to Goldman Sachs economist Megan Peters.
Core inflation is “close to target in most countries but is still notably higher in the U.S., especially in PCE terms,” Peters said, which on the surface makes the U.S. look like “a global outlier in still having a meaningful inflation problem.” But a more detailed breakdown of inflation baskets tells a different story, she noted.
To analyze the divergence, Goldman decomposed core inflation into three components: core goods, non-shelter services, and shelter inflation. Peters found inflation has returned to long-run trends in both emerging markets and non-U.S. developed markets, but remains elevated in the U.S., running about 3 percentage points above its pre-pandemic trend in PCE terms.
The economist attributed the entire U.S. goods overshoot to two temporary, U.S.-specific factors — tariffs and a “mismeasured AI boost.” Peters estimates tariffs are adding 2.4 percentage points to year-over-year core PCE goods inflation, an effect she expects to largely fade by the second half of next year.
Separately, AI-driven memory price increases are adding roughly 1 percentage point to core goods inflation through the “software and accessories” category, a distortion Peters expects to ease in 2027 as memory price pressures moderate and the Bureau of Economic Analysis adjusts its weighting methodology.
Meanwhile, shifting Chinese trade patterns are helping push goods prices lower elsewhere. Peters estimated that increased imports from China have lowered goods prices by 0.8% on average in non-U.S. developed markets and 0.6% in major emerging markets.
On the services side, the economist found non-shelter services inflation elevated across most economies, particularly in U.S. PCE data. However, after adjusting for differences in how countries measure medical and financial services, she said that “core services inflation in the U.S. is actually lower than in other large DMs.” Unit labor cost growth also looks more contained in the U.S. than abroad, which Peters said “points to more risk of sustained inflation pressures outside of the U.S.”
Meanwhile, rent inflation has fully normalized in both the U.S. and emerging markets, but remains elevated in other developed markets, particularly those with more limited pullbacks in immigration, Peters noted.
She concluded that the global inflation overshoot is largely being driven by services, which tend to be stickier, while much of the U.S. overshoot stems from goods inflation that is expected to reverse. “Our results suggest that the U.S. has less of an inflation problem than other countries, despite what current top-line measures suggest,” Peters wrote.
Source: Investing.com.
