Inflation is back in the headlines, and this time, it’s not just the Fed’s doing. Goldman Sachs released its U.S. Inflation Monitor for March 2026 on April 20, 2026, and the picture it paints is one shaped by forces that didn’t exist a year ago. Headline CPI surged 0.87% in March alone, pushing the year-over-year rate to 3.29%, according to the U.S. Bureau of Labor Statistics, driven in large part by a 10.9% spike in energy prices tied directly to the start of the Iran war. Headline PCE is estimated to have risen 0.64% for the month, lifting its year-over-year rate to 3.45%, according to the Board of Governors of the Federal Reserve System.The good news, buried beneath those numbers, is that core inflation, the measure the Federal Reserve watches most closely, is actually decelerating. The question is whether the war’s commodity ripple effects and lingering tariff pressures can be contained before they undo that progress. Goldman thinks they can. But the bank isn’t without caveats.How the Iran war is driving Goldman Sachs’ inflation concernThe single biggest inflation wildcard right now isn’t monetary policy. It’s geopolitics. Oil prices jumped from an average of $71 per barrel in February to $103 per barrel in March, the U.S. Energy Information Administration (EIA) confirms.That’s a 45% spike in a single month. Goldman’s oil strategists expect Brent crude to pull back to $80 per barrel by the fourth quarter of 2026, but the bank is explicit that risks remain tilted to the upside.More Oil and Gas:The world’s biggest gas field matters just as much as oil right nowGoldman Sachs reveals top oil stocks to buy for 2026U.S. economy will show resilience, despite rising oil prices”Given the reduction in the risk premium at the front of the curve and already edging up oil flows through the SoH, we nudge down our Q2 forecast for Brent/WTI,” Goldman’s commodity analysts wrote in a note, according to TheStreet.The energy shock flows directly into headline inflation through household energy costs and transportation services, where passthrough is most pronounced. But oil isn’t the only commodity the Iran war is disrupting.
Goldman expects core goods inflation to decelerate sharply, from 2.7% in March to just 0.6% by December 2026, as the tariff passthrough cycle runs its course.Shutterstock
Goldman raises its December 2026 PCE inflation forecastThe conflict has also raised prices on Gulf exports, including nitrogen fertilizer and aluminum. Goldman estimates that higher fertilizer costs will push food prices up roughly 1.5% this year, adding approximately 0.1 percentage point (PP) to headline inflation. Higher food prices, in turn, feed into restaurant prices within core PCE, contributing an additional 0.05 to 0.10 percentage points to core inflation.Taken together, Goldman has raised its December 2026 year-over-year headline PCE inflation forecast by a full percentage point since the war began, with most of that revision attributable to energy.Related: Goldman Sachs resets Broadcom stock forecastYou, and every other consumer, are already feeling it. Short-term inflation expectations jumped one percentage point in the University of Michigan survey to 4.8% for the year ahead. The New York Fed’s equivalent measure rose 0.4 percentage points to 3.4%. Long-term expectations, historically more anchored, also crept higher in both surveys, a development the Fed will be watching closely.Financial market-implied expectations for 2026 headline CPI inflation rose 0.8 percentage points to 3.3% since the war began, according to Trading Economics.Tariffs have already hit consumers, but the worst may be overBefore the Iran war complicated the picture, tariffs were the dominant inflation story of early 2026, and their impact is still being felt.Goldman estimates that 72% of tariff costs have passed through to consumer prices after 12 months. That passthrough has added 0.8 percentage points to current year-over-year core PCE inflation, a meaningful contribution to a measure the Fed targets at 2%.Related: Goldman Sachs just made a big call on Amazon stockCore goods prices increased 0.84% in February, the fastest monthly pace since January 2022, reflecting continued tariff passthrough alongside a 6.5% jump in software prices. The year-over-year rate for PCE core goods stands at 2.7% in March, a stark contrast to the average pace of -0.5% seen in 2018, the last time the Fed was broadly comfortable with inflation running near 2%.The forward-looking picture is more encouraging. Goldman expects core goods inflation to decelerate sharply, from 2.7% in March to just 0.6% by December 2026, as the tariff passthrough cycle runs its course. That deceleration alone would remove significant upward pressure from the core inflation reading in the second half of the year.What Goldman Sachs actually expects inflation to do by year’s endStrip away the war noise and the tariff effects, and Goldman’s base case is a gradual return to the Fed’s comfort zone.Core PCE inflation: Approximately 2.2% in February 2026 (excluding tariff effects), trending lowerSequential trend: Core inflation slowed in February and March, moving toward pre-pandemic levelsGoldman Sachs Core PCE: Seen at 2.5% by December 2026Goldman Sachs Core PCE: Further easing to 1.9% by December 2027Core CPI forecast: 2.6% in March to 2.1% by end of 2026 to 2.0% by end of 2027Year-over-year wage growth in Q1: 3.7% (still elevated, but cooling)Business survey expectations: Eased to 3.3% in MarchInflation pressures are gradually moderating, supporting a broader disinflation trend. The jobs-workers gap, a measure of labor market tightness, has narrowed to -0.3 million, a far cry from the six million gap at the peak of post-pandemic labor tightness in early 2022.For everyday Americans, the Goldman forecast carries a practical message. Mortgage rates, credit card rates, and auto loan costs all move in the shadow of inflation and Fed policy. A sustained decline in core PCE toward 2.5% by year’s end would give the Fed room to consider rate cuts, easing pressure on borrowing costs that have squeezed household budgets for the better part of three years.Related: Goldman Sachs resets China robotaxi fleet stock forecast