U.S. May Revised Core CPI Falls to 2%, Global Economy Remains Resilient

Overview

This report is part of Goldman Sachs' regular updates on global macroeconomic indicators. It notes that inflationary pressures in the U.S. continue to ease, with the revised core CPI annualized inflation rate falling to near 2% in May. Meanwhile, global financial conditions have relaxed, and the Current Activity Index (CAI) indicates that global economic growth remains above its potential level, with upward revisions to growth expectations for both the U.S. and South Korea. Overall, the global economy has maintained solid growth resilience amid cooling inflation.

Core views

Inflation and the Labor Market: The U.S. revised core CPI annualized inflation rate fell to around 2% in May, signaling a continued trend of easing inflation. However, Goldman Sachs estimates the revised core PCE inflation rate at a slightly higher 2.8%. On the labor market front, tracking job–worker gaps and leading wage survey indicators reveals that labor supply–demand imbalances in major developed economies are gradually normalizing, with wage growth pressures steadily abating. Economic Growth and Activity Indicators: Goldman Sachs' proprietary Current Activity Index (CAI) shows that global economic activity remains above potential growth levels. In May, the global CAI registered +3.0%, with emerging markets (+4.4%) outperforming developed markets (+2.1%). By country, the U.S. CAI reached +3.2% in May, Japan's CAI declined by 0.4 percentage points month-over-month, while Norway's rose by 0.3 percentage points. Based on the latest data, Goldman Sachs upgraded its GDP growth forecasts for the U.S. and South Korea in 2026. Financial Conditions and Fiscal Pulses: Last week, the global Financial Conditions Index (FCI)—excluding Russia—eased by 2.0 basis points, largely due to declines in long-term interest rates. From a fiscal pulse perspective, over the next four quarters, the impact of major economies' fiscal policies on real GDP growth will vary significantly: the U.S. fiscal pulse reflects a combination of expansionary policies and tariff-related tax effects, whereas some European countries face fiscal headwinds.

Analysis framework

The report relies on Goldman Sachs' proprietary macroeconomic indicator system for high-frequency monitoring and forecasting. The analysis unfolds across four dimensions—'inflation–employment–growth–financial conditions': first, it isolates genuine price trends through 'trimmed core inflation,' which excludes one-third of the most extreme price movements to filter out short-term noise and supply shocks; second, it assesses labor market slack's transmission to inflation using 'job–worker gaps' and 'wage trackers'; third, it employs the 'Current Activity Index (CAI)'—constructed via principal component analysis—and 'short-term utilization scores' to gauge real-economy heat and output gaps; finally, it integrates the 'Financial Conditions Index (FCI)' and 'fiscal pulses' to evaluate how macro policy environments will lead or hinder GDP growth over the coming quarters.

Methodology notes

• Macroeconomic framework

  Trimmed Core Inflation

  This metric filters out one-third of the most extreme price changes within core inflation components, thereby eliminating short-term volatility caused by supply shocks and other transient factors, providing a more accurate reflection of underlying, persistent inflation trends.

• Macroeconomic framework

  Current Activity Index (CAI) and Principal Component Analysis

  The CAI uses principal component analysis to reduce multiple high-frequency real-economy activity indicators into a single composite index, expressed in GDP-equivalent units. It effectively extracts core growth signals from noisy data, enabling institutions to track economic conditions in real time before official GDP releases.

• Macroeconomic framework

  Financial Conditions Index (FCI) and Pulse Analysis

  The FCI aggregates variables such as short-term and long-term interest rates, credit spreads, stock market valuations, and exchange rates to measure overall financial environment tightness or looseness. The FCI pulse further quantifies how changes in financial conditions may lead or hinder real GDP growth over the next few quarters, serving as an important tool for assessing monetary policy transmission effects.

• Macroeconomic framework

  Job–Worker Gaps

  This indicator measures the difference between total labor demand (job vacancies plus employed individuals) and total labor supply (working-age population). Compared to unemployment rates alone, it offers a more comprehensive view of labor market tightness and serves as a key forward-looking metric for predicting wage growth and core inflation stickiness.

Key data

• U.S. May Revised Core CPI Annualized RateApproximately 2.0%Significant easing of inflationary pressure, approaching the Federal Reserve's target
• U.S. May Revised Core PCE Annualized Rate (Goldman Sachs Estimate)2.8%Slightly higher than the CPI reading
• Global (Excluding Russia) FCI Weekly Change-2.0 bpsFinancial conditions have eased, mainly driven by lower long-term interest rates
• May Global Current Activity Index (CAI)+3.0%Remains above potential growth rate (2.5%)
• May U.S. Current Activity Index (CAI)+3.2%Increased by 0.1 percentage point month-over-month, indicating strong growth momentum

Impact & implications

The report's data suggest that major global economies are gradually achieving soft landings or maintaining growth resilience. The cooling of U.S. inflation provides central banks with greater flexibility in monetary policy, while eased financial conditions and economic activity indices above potential growth indicate a low risk of recession in the near term. Emerging markets generally exhibit stronger growth momentum than developed markets, yet divergent fiscal pulses imply structural differences in how future policies will support economic growth across regions.