• Goldman Sachs predicts tariffs will push core inflation to 3.5% by year-end, up from April's 2.8%.
  • The bank expects a temporary spike in goods prices, with May's CPI data showing a 0.05 to 0.25 percentage point increase.
  • Economic growth forecasts for 2025 have been slashed to 0.5%, with recession odds rising to 45%.

Inflationary Pressures Mount

Goldman Sachs has issued a stark warning about the inflationary impact of recent tariffs, projecting a measurable uptick in core inflation as early as this week's May CPI data release. The investment bank anticipates tariffs will add between 0.05 and 0.25 percentage points to month-over-month core inflation, with effects concentrated in goods prices rather than services.

"We're seeing clear signals that tariffs will flow through to consumer prices," said a senior economist at the firm who asked not to be named discussing sensitive forecasts. "While we don't expect a repeat of 2021's sustained inflation, this could represent the largest one-time price adjustment since then."

Broader Economic Fallout

The bank's revised models now show significantly weaker growth prospects, cutting its 2025 U.S. GDP forecast to just 0.5% (Q4/Q4) and raising recession probability to 45%. Four distinct transmission channels are driving this outlook: reduced real consumer income from higher prices, tighter financial conditions, increased business uncertainty, and potential trade retaliation.

Federal Reserve officials, speaking on condition of anonymity, indicate growing concern about having to navigate conflicting pressures of rising prices and slowing growth. Goldman now expects three 25-basis-point rate cuts in 2025 as "insurance" against a sharper downturn.

Corporate Sector Braces for Impact

Major retailers have begun contingency planning, with several large chains considering selective price increases, according to industry sources. One big-box retailer's CFO, who declined to be identified, said they're "modeling scenarios where we absorb some costs and pass through others."

Wednesday's CPI release will provide the first concrete evidence of how quickly tariff costs are reaching consumers. Analysts will be watching particularly for passthrough in electronics, apparel, and home goods categories where import exposure is highest.