A few days ago, the U.S. CPI and PPI data released exceeded market expectations, the Federal Reserve believes that this is only a “temporary” hyperinflation. However, Wall Street continues to bet on the non-temporary nature of U.S. inflation, investors have been worried about the possibility of hyperinflation. In response, Goldman Sachs warned that inflation will not be temporary and that more data will emerge that housing inflation is about to break out.
According to data released by the National Association of Realtors on May 12, U.S. home prices rose 16.2 percent in the first quarter of this year compared to the same period in 2020, with the median price of a single-family home in the United States reaching a record high of $319,200, an increase of 14.8 percent over the fourth quarter of last year, which was the highest since data became available in 1989.
The Wall Street Journal reported on May 17 that Goldman Sachs analyst Ronnie Walker pointed out in a new research note that the nationwide housing shortage will drive home prices up sharply for at least a few years while Biden’s trillion dollar stimulus brings inflationary pressure, and that 5-15% of home price appreciation will be passed through to inflation.
Goldman Sachs predicts that by 2024, U.S. home prices will rise much faster than the recognized 2006-2007 housing bubble. The spillover effect of soaring home prices means that the coming hyperinflation will not be temporary.
A Goldman Sachs model combining CPI data for urban areas with local data on unemployment, vacancy rates and home price appreciation predicts that the U.S. unemployment rate will eventually fall to the 50-year lows reached last cycle as economic recovery accelerates, with a front-loaded labor market recovery consistent with historically high home price growth.
The report finds that U.S. housing inflation will rise at a year-over-year rate of 3.8% by the end of 2022 and exceed 4% in 2023. Inflation will then slow as home price growth slows.
Goldman Sachs analysis says that the continued imbalance between supply and demand in the U.S. housing market will bring double-digit home price appreciation this year and next, and that across many examples, 5%-15% home price appreciation will feed through to inflation over a span of several years.
The Goldman Sachs report notes that housing inflation is a key component of core inflation: first, rents and owner-equivalent rents (OER) account for nearly 20% of the core personal consumption expenditure deflator (PCE) price index and 40% of the core CPI index; second, housing inflation is one of the most reliable cyclical factors in core economies, and empirically, it is a key driver of the Phillips curve. Over the past 20 years, PCE housing inflation has averaged 3.0% when core PCE is above 2%.
Walker believes that U.S. housing inflation has fallen sharply over the past year due to the impact of the CCP virus epidemic, as the tough employment situation has reduced people’s ability to pay rent; in addition, the moratorium on evictions, which provides protection to tenants, has waived some tenant rents.
According to Goldman Sachs’ calculations, these waived payments have put pressure on year-over-year housing price increases of about 25 basis points.
Currently, U.S. bond traders’ expectations for inflation over the next five years have risen to the highest rate since 2006, and the latest release of U.S. labor shortage data could exacerbate inflationary pressures.
In a speech on May 10, senior Federal Reserve economist Ko Prang called on the Fed to start discussing tapering bond purchases as soon as possible, warning of imbalances in financial markets and expecting inflation to rise sharply in the coming months.
A Bank of America survey of dozens of fund managers showed that 93% of them believe that the level of inflation in the United States will accelerate upward in the next 12 months and expect interest rates to rise, making a double-digit pullback in U.S. stocks.
Median one-year inflation expectations rose to 3.2%, the highest level since 2014, according to the New York Fed’s latest survey of consumer expectations.
U.S. inflation will reach 3.5% in April if real home prices are included in the CPI, according to the latest forecast cited by U.S. financial website ZeroHedge.