In the eight quarters since the trough of the recession in the middle of 2009, real household income has fallen 2½ per cent, as only modest wage growth has been more than offset by elevated inflation. And with higher utility prices pushing consumer prices up another 1¼ per cent since June, it is probable that real household disposable income will turn out to have fallen during the second half of this year too. Against that background, it is not surprising that real consumer spending growth has been weak. Although elevated inflation has been the medium through which some of this squeeze in living standards has been brought about, the squeeze reflects three deeper real economic forces that monetary policy can do little to negate. The first force is the aforesaid rise in the price of commodities, relative to the prices of global goods and services, associated with the confluence of strong demand growth in the emerging economies and commodity producers’ inability or unwillingness to increase supply to match the extra demand. The second force is the fall in the purchasing power of sterling. Before the financial crisis, the UK was operating with an unsustainably low level of national savings and an associated current account deficit. In addition, the crisis has probably led to a long-lasting hit to the demand for financial services exports.
However, that rate is now heading upwards, rising from around 1.5% in mid-2022 to 3.6%12 in February this year. At some point, however, the fall in energy prices, the improvement in supply chains and the moderating demand, owing to tighter financial conditions should begin to gradually produce reverse effects on inflation. Thus, at the current juncture, we could well be nearing some sort of crossroads, where the lagged effects of the past increases in commodity prices and exchange rate depreciation are still present, but diminishing, while the first effects of the most recent decreases and appreciation may be emerging and on the rise. However, when this crossroads is reached, and how strongly it will support a decline in inflation, will depend on the extent of the symmetry between the impact of higher and lower costs on prices. In this regard, the impact of cost decreases on inflation may not be fully symmetrical to the impact of cost  10  These items were more directly affected by the increase in the cost of energy, food prices or supply bottlenecks, together with the strong demand for specific goods during the pandemic (especially in the case of durable goods) and the reopening phase (notably in the case of services). 11  A breakdown of core inflation by destination of expenditure shows that the components related to transport recorded an annual price increase at 7,1% in February, 7,3% in December. Prices in the housing equipment and maintenance sub-index increased 9% February, down from 9,3% in December.