One possible explanation of this resilience in underlying costs and prices is that demand and supply have fallen largely in lockstep, leaving slack in the economy relatively little changed. The design of the furlough scheme, which has supported household incomes and aggregate demand at the same time as labour supply has fallen sharply, would support that interpretation. While output in the UK is likely to have fallen by around 8% during 2020, household incomes are likely to have been broadly flat. An alternative explanation lies in the heterogeneity of Covid’s impact on certain sectors, lowering demand sharply for some, raising it for others. If the price effects of the latter have dominated the former – for example, because of capacity constraints on expanding supply in some sectors – this might explain the relative robustness of aggregate cost and price measures.14 The sectoral pattern of demand and prices during the Covid crisis is consistent with this explanation (Chart 11). We have also seen these price dynamics at work in other markets as demand has recovered, notably in commodity markets. The price of oil has risen by around 65%, and of non-oil commodities by more than 20%, in the last four months. This reflation reflects rising (actual and expected) demand for these  commodities, alongside short-run constraints on supply. The MPC’s judgements on slack are shown in Chart 12, together with estimates of the output gap following the global financial crisis.
While patient behaviour is associated with activity in the pre-frontal cortex, impatient behaviour is associated with a distinct part of the brain – the limbic (or midbrain dopamine) system. 9 Humans have distinct patience and impatience “genes”. When making difficult inter-temporal decisions, we are quite literally in two minds. Impatience is no stranger to economics. It was discussed by Neo-Classical economists, such as Marshall, Fisher and Pigou writing over a century ago. Pigou memorably described the tendency of humans to discount excessively future outcomes as a “defective telescopic faculty”. Today, research has gone one step further: discounting is not just myopic but inconsistent through time. This has been given a somewhat less memorable, if mathematically more accurate, moniker by economists – “hyberbolic discounting”. 10 Hyperbolic discounting describes how people’s preferences alter as distant outcomes become closer to the present. Concretely, imagine a person who prefers $ in ten years’ time to $ in nine years’ time. With hyperbolic preferences, this same person would also favour $ in one year’s time to $ in two year’s time. They exhibit inconsistencies in decision-making across time, or so-called preference reversals. The implications of such behaviour are potentially far-reaching. The patient planner becomes a spontaneous doer when outcomes are within reach. The cautious saver becomes a reckless spender when nest eggs are close to hatching. The long-term investor becomes a short-term speculator if assets can be cashed. As temptation beckons, the devil on one shoulder whispers more seductively than the angel on the other.