And generally speaking, the unwinding of pandemic supports and the onset of inflationary pressures are likely to expose a degree of latent distress in the economy, masked up to recently by both direct fiscal supports and widespread creditor forbearance, with indicative evidence that insolvency rates are beginning to rise from their extraordinarily low levels since the outbreak of Covid.
At the household level, higher inflation is reducing real incomes and spending power. People are spending more of their incomes on essential goods such as food and energy. At the same time, there is increasing evidence of a broadening of prices pressures to other consumer goods and services, and people’s earnings are not keeping pace with rising prices.