Goldman Sachs Global Economics Analyst Exhibit 8: Disinflationary Impact of Normalizing Supply Chains and Rental Markets Still Has a Long Way to Go Z-Score Z-Score Percent change, Percent change, 4 Supplier Delivery Times, Average of Business Surveys 4 monthly annual rate monthly annual rate Manufacturing Prices, Average of Business Surveys 50 Apartment List: Asking 12 Rents, SA by GS (Left) 3 3 40 CPI: Rent of Primary Residence (Right) 30 9 2 2 20 1 1 6 10 0 0 0 3 -1 -1 -10 -2 -2 -20 0 2012 2014 2016 2018 2020 2022 2017 2018 2019 2020 2021 2022 Supplier delivery times and manufacturing prices paid surveys are from ISM, S&P, ISM Chicago, NY Fed, Philadelphia Fed, Richmond Fed, Dallas Fed, and Kansas City Fed, as well as Creighton University for supplier delivery times only. Source: Haver Analytics, Goldman Sachs Global Investment Research The third reason is that long-term inflation expectations remain well-anchored, especially relative to the 1970s. This is true for each of the available measures, namely those based on 1) surveys of households, 2) surveys of economic forecasters, and 3) inflation-protected bonds. Measures of short-term inflation expectations remain relatively high, but much of this probably reflects the spike in commodity prices and should wane if commodity prices level off. The fact that inflation has only been high for a short and unusual pandemic period also suggests that elevated inflation is not entrenched (Exhibit 9). Exhibit 9: Anchored Long-Run Inflation Expectations Measures and a Short Period of High Inflation Percent US Long-Run Inflation Expectations Percent Percent Share of Months in Prior 10 Years with Percent 10 University of Michigan Survey, Next 5-10 Years 10 YoY Core PCE Above 2.5% 9 Great 9 100 100 Inflation 8 8 80 80 7 7 6 6 60 60 5 5 4 Great 4 40 40 Moderation Reopening 3 3 2 Average, 2000-2019 2 Covid 20 20 1 1 0 0 0 0 1979 1984 1989 1994 1999 2004 2009 2014 2019 2024 1970 1980 1990 2000 2010 2020 Source: Haver Analytics, Goldman Sachs Global Investment Research Taken together, we expect year-over-year core PCE inflation to decline from 5.1% in September to 2.9% in December 2023 (Exhibit 10). We expect supply-constrained durable goods with still elevated margins, such as used cars, to drive nearly half of the slowdown in overall core inflation. 16 November 2022 8