In particular, we cannot rule out here that unfavourable new developments will arise, whether because the worsening infection figures we are seeing during the second wave continue for a lengthy period of time, because it is necessary to resort to more severe containment measures, or because an effective medical solution does not become available in the time frame the scientific community has suggested as most realistic, namely around mid-2021. Should these risks materialise, they would weigh down on the recovery in economic activity envisaged in the above-mentioned scenarios. And we cannot rule out very marked effects as a result of abrupt and potentially non-linear changes in the dynamics of capital markets, the stability of financial institutions or agents’ confidence. Setting aside how the pandemic may evolve, some significant sources of uncertainty remain on the external front. One of these is the possibility that the Brexit negotiations will conclude without an agreement at the end of the transition period, an aspect on which risks currently remain tilted to the downside. A further source of uncertainty concerns future US-China trade relations. Undoubtedly, this matter will be greatly influenced by the outcome of yesterday’s US presidential election, though it is still early to accurately gauge all the ensuing implications. On the domestic front, a significant factor for the Spanish economy, not only in the coming quarters but also in the medium and long term, is unquestionably our ability to mobilise and efficiently assign the European funds available under the Next Generation EU (NGEU) programme.
But price controls cannot solve the issue of scarcity, which is often the main cause of high prices. The main disadvantage of capping prices is that price ceilings do not guide consumers to reduce their consumption of the scarce product. This has been the problem with price caps for energy, as it does not encourage consumers to use energy more efficiently, and nor do caps offer producers any incentive to increase supply. The alternative is targeted income support measures, which allow the burden of higher energy costs to be shared within a society. Unlike price controls, these measures preserve price signals and help to steer both demand and supply towards a new equilibrium. The main concern with income support is that it is more difficult to manage. How target groups are selected is a highly political issue and any such measures are an additional fiscal cost, so they need to be temporary and well targeted. In summary Headline inflation is falling in the euro area, but it still remains too far above the ECB's target of two per cent. That measures of underlying inflation are still very high is even more worrisome, as it indicates a presence of more persistent inflationary forces that can be difficult to break. The differences in inflation rates between the member states of the euro area have largely been driven by energy prices and the policy measures taken by governments, and they remain wide.