After 18 months of high inflation, inflation in the U.S. and many European countries is fading。

Recently, inflation data from many countries in the US and Europe have been better than expected.。Eurozone annual inflation falls to 2 in November.4%, one step away from the ECB's 2% target。In the United States, data released in October showed that the country's inflation rate had fallen to 3..2%。The UK has fallen more slowly, with the latest figures showing the country's inflation rate falling to 4.6%。

The main driver of this year's decline in inflation has been the easing of external price pressures.。Europe suffers food and energy price shock after Russia-Ukraine conflict。But last month euro zone energy prices fell close to a record year。In the UK, food price inflation also continues to fall。The U.S. was previously hit by supply chain disruptions that persisted during the epidemic, but now these external pressures have also eased。

As the impact of early price shocks faded, several countries joined the battle for the "last mile" of inflation.。However, central bankers in a number of countries have repeatedly warned that the "last mile" will be more difficult because it involves curbing the growth of domestic prices of goods and services.。Investors were dazzled by the lower-than-expected inflation data and considered cutting interest rates earlier than monetary policymakers.。This has eased financial conditions to some extent.。

Recently, core price inflation (excluding food and energy prices) has reached an inflection point in several countries.。Currently, core price inflation in the euro area is 3.6%。The U.S. core price growth indicator is also currently at its lowest level since April 2021.。Moreover, there are growing signs of weakening economic activity in many countries in the U.S. and Europe, which will set the stage for an earlier-than-expected rate cut.。

The difficult "last mile" is not all rhetoric, and wage growth is one of the "hard bones."。Indeed Wage Tracker shows annual wage growth has fallen back from peak but remains high。UK data showed wages rose 7 per cent in October, contributing to high inflation in the services sector as pay is the largest component of the services sector price index。With the productivity forecast cut, central bankers will want to see wage growth fall further to reduce core inflation, which is still higher than expected.。

In addition, there are special factors and risks to consider。In Europe, the base effect of high energy inflation last year will become less favorable。Capital Economics expects eurozone inflation to rebound above 3% in December。And, as the Middle East conflict continues, oil prices have become volatile。Long-term U.S. inflation expectations picked up last month to their highest level since 2008, which is also slightly worrying。

It is too early to declare the end of the task of reducing inflation。After all, the central bank's goal is to get inflation back to 2% and keep it there。

With the impact of previous rate hikes still spreading and real interest rates rising, central banks will likely need to start considering rate cut strategies in 2024 before the time they originally expected。This is because the likelihood of not meeting the target inflation rate has increased at this stage, especially in the euro area.。

At the same time, policymakers need to pay close attention to whether there are signs of stickiness in core inflation and the impact on inflation of medium-term dynamics such as demographic changes, the AI revolution and changes in the geopolitical situation.。Given that there are so many factors to consider, the "last mile" may indeed be the hardest for policymakers.。