"IPC shows signs of relief, but inflationary challenges persist in Europe."

The recent publication of the Consumer Price Index (CPI) has brought a ray of hope amidst an economic context marked by uncertainty. With a year-on-year increase of 2.2%, this figure is slightly above the eurozone average, which, in harmonized terms, has also experienced a similar uptick. This result invites reflection on the possibility that we may be witnessing the twilight of a inflationary period that has left its mark following the energy crisis and disruptions in supply chains. However, it is crucial to understand that this is not a sign that inflation has completely disappeared, as the core CPI remains at 2.7%. As the figures are analyzed, a notable relief is observed in the shopping basket, which is beginning to become cheaper thanks to falling production costs. For at least four months, the prices of processed foods have been declining, while fresh products have also experienced a similar trend in the last two months. This suggests that inflation in these components could approach the target of 2%, a level already reached by industrial goods. However, electricity remains a volatile component, and fuel prices, for the moment, remain at manageable levels, resisting the effects of supply cuts announced by producing countries. One of the most significant aspects of this situation is the stability of inflation expectations. Despite the discouraging projections that existed, companies seem to anticipate a de-escalation in selling prices for the coming months. This indicator is fundamental, as it has proven to be a good predictor of the CPI in the past. Additionally, wages also show signs of moderation, which could contribute to containing inflation. Although wage increases in the first quarter were considerable, there has been no evidence of a consolidation of these adjustments in collective agreements, suggesting that pressure on prices could begin to ease. However, not all news is positive. Inflation in the services sector remains a latent concern. In Spain, this figure stands at around 3.5%, while in the eurozone it has accelerated above 4%. Unlike other sectors, the rise in service prices does not stem from production costs or energy, but from robust demand exacerbated by a lack of competition in these markets. Since 2019, the CPI for services has accumulated an increase of nearly 18%, an alarming figure that almost triples the growth of inflation for non-energy industrial goods. Given this complexity, it is expected that the European Central Bank (ECB) will acknowledge the achievements in the disinflation process at its next meeting and, as a consequence, opt for a new interest rate cut. This change would be consistent with the current weakness of the European economy, where investment is one of the most sensitive components to monetary policy decisions. The lack of dynamism in credit to businesses and consumer caution, following the summer holidays, suggest a scenario in which the economy could be far from reaching optimal growth levels. It is important for the ECB to act with caution and gradualness in its decisions, especially regarding inflation in the services sector. Furthermore, the central bank will want to assess the impact of its policies in interconnected financial markets, particularly in relation to movements by the Federal Reserve in the United States. In this regard, the possibility of a rate cut on the other side of the Atlantic could pave the way for a more expansive monetary policy in Europe. Despite the expectation of a relaxation in interest rates, it is essential to recognize that there are structural factors that could hinder a significant decline in these rates. The labor shortage in certain sectors, exacerbated by demographic changes and an increase in customs barriers, creates an environment in which it is unlikely that interest rates will return to the levels seen a few years ago. This marks the beginning of a new era both in the monetary cycle and in globalization, where structural challenges intertwine with fluctuating economic dynamics. In conclusion, although the latest CPI data offers a respite and an optimistic outlook regarding the end of the inflationary episode, the reality is that significant risks and challenges still persist. Inflation in the services sector and the weakness of the European economy are factors that cannot be ignored. As the ECB navigates this complex landscape, it will be essential for it to make informed and strategic decisions to ensure that economic recovery is sustainable and equitable for all sectors of society.