Goldman CFO says inflation likely transitory but a sharp rise would have ‘negative consequences’

• The U.S. Labor Department on Thursday revealed that May's core consumer price index reading, which excludes food and energy, rose 3.8% on a year-over-year basis, a 28-year high
• Deutsche Bank this week broke away from consensus among policymakers and Wall Street strategists who say that the period of red hot inflation will be transitory.

A sustained spike in inflation would have "negative consequences" for markets and major banks, according Goldman Sachs Chief Financial Officer Stephen Scherr.

The U.S. Labor Department on Thursday revealed that May's core consumer price index reading, which excludes food and energy, rose 3.8% on a year-over-year basis, a 28-year high. Headline CPI rose 5% against expectations of a 4.7% annual climb, and up from 4.2% in April.

Deutsche Bank this week broke away from consensus among policymakers and Wall Street strategists who say that the period of red hot inflation will be transitory. The German lender's economists cautioned that continued focus on monetary and fiscal stimulus and dismissal of inflation concerns risked a "time bomb" for the global economy.

This view was echoed Wednesday by veteran investment strategist David Roche, who expects high inflation to continue into 2022 and the Federal Reserve to be forced to "taper" down its unprecedented monetary stimulus.

Speaking exclusively to CNBC Wednesday, before the latest upside inflation surprise, Scherr said the Goldman Sachs position remains that the inflation surge is transitory, but he acknowledged there are risks of overheating.

"So we're seeing inputs to the likes of automobiles and the like … being pinched, but that's a transitory element in terms of what may play out," he said.

"Likewise, we're seeing very, very sharp increases in prices around some of the Covid-affected areas like hotels and airlines, but again I think that begins to moderate and the risk of inflation, therefore low, is certainly not off the table," he said, suggesting that the Fed and other central banks are in a position to handle the current risks.

Scherr noted that while low interest rates and elevated equity prices are generating "considerable activity" for Goldman's mergers and capital markets businesses, a sustained pickup in inflation and potential monetary tightening by central banks could pose a threat.

"If circumstances were such that inflation did, in fact, take hold and central banks needed to take action, that would no question have negative consequences for the broader markets and would impact a number of different businesses, the least of which would be ours."

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