This morning’s ECI and housing price inflation figures confirm what I have suspected and feared. Inflation is not securely trending to target levels.

Note that the ECI has accelerated from previous quarterly, semi-annual and annual levels. I suspect it has been understating labor cost inflation of late because of reduced work requirements associated with WFH.

The home price inflation figures are also cause for concern that shelter inflation is not durably declining. With higher interest rates and higher unit prices, rents will at some point reaccelerate.

Note, that as many have pointed out, bottlenecks have been easing over the last year or so reducing inflation momentum. This will not be forever and given geopolitics may reverse.

Financial conditions are now loose by historical standards.

All reasons why the @FederalReserve is in a treacherous environment, should have been more careful about easing signals and now should be very cautious about possible rate cutting.