Steven Blitz, chief U.S. economist at TS Lombard, believes that the current decline in U.S. inflation does not necessarily mean that the pressure has completely disappeared, but rather that it is still reflecting the lagged effects of tighter financing conditions and slower investment in 2025. Their Wicksellian Spread indicator shows that financing conditions have eased again, and the share of private non-residential fixed investment in GDP has rebounded significantly, while core inflation typically lags behind this financing environment by about a year.
Therefore, there is a time misalignment between the current low inflation and the current economic environment: today's data reflects last year's tightening, but the current low real financing costs, faster nominal demand, and expansion of capital expenditures such as AI may have a greater impact next year.
Blitz concludes that we may be approaching a temporary low point in this round of inflation, rather than the beginning of a new round of sustained low inflation.
