Read the extract below and answer the questions that follow:

China Corporates Face Mounting Demand and Supply Challenges Near-term pressures on profitability are increasing for Chinese companies in a number of sectors, says Fitch Ratings. Domestic and external consumer demand faces headwinds, even as supply chains within China are challenged by wide-ranging restrictions on movement designed to counter the spread of Covid-19 cases. As of mid-April, pandemic-related public health restrictions affected all but 13 of the top 100 cities by GDP, according to research firm Gavekal, with a number of large regions such as Shanghai and Jilin facing full lockdowns for parts of March and April. These measures have added further challenges to policymakers' efforts to stabilise economic momentum, after the emergence of housing-sector strains from mid-2021 that led some developers into distress. Dented consumer confidence was evident in a quarterly survey released at end-1Q22 by the People's Bank of China. This showed urban residents intended to reduce spending and investment, despite improved perceptions about household income and employment. It indicated that households intend to cut discretionary spending, focusing instead on essential items, education and healthcare. Retail sales also fell yoy in March. Fitch expects China's retail sales growth to decelerate to mid-single digits in 2022 from 12.5% in 2021, given weaker consumer sentiment, the impact of lockdowns and the high base effect for 1H22. Sectors that benefit from discretionary spending, including tourism, entertainment and luxury goods, are likely to underperform essentials. This could put pressure on the ratings of more vulnerable firms in these discretionary sectors. Demand pressures for Chinese corporates will be aggravated by softer consumer demand in developed markets. This reflects, in part, high levels of inflation and the tightening of monetary policy - in contrast to trends in China, where consumer price inflation remains low - as well as a normalisation of demand patterns after the surge in goods purchases during the pandemic. China's goods export growth slowed to 15.8% yoy in 1Q22, from 29.9% in full-year 2021. Demand pressures have been accompanied in recent weeks by an increase in supply chain problems associated with movement restrictions. Several companies have reportedly halted production owing to difficulties in transporting inputs and finished products. We expect manufacturers with long supply chains - such as automotive, aerospace and consumer technology firms - to be more exposed to this issue. Effects on output may prove temporary (and recoverable) if the authorities succeed in containing Covid-19 cases, but we believe there is a risk disruption could continue for months as new outbreaks emerge and are suppressed. Subdued consumer sentiment has impeded companies' ability to pass on higher input costs. Consumer price inflation has been below producer price inflation, in yoy terms, since January 2021, suggesting that downstream corporates are absorbing higher upstream costs. This may have adverse effects on their profitability, and in turn on their standalone creditworthiness. However, this impact could be offset by other factors, such as reducing capex due to the weaker demand outlook. Moreover, exporters have been better able to raise prices, passing on higher costs to overseas customers. Higher commodity prices should be broadly credit positive for upstream industrial corporates. In 2M22 profits among large mining and quarrying firms rose by 132% yoy while those of manufacturers dropped by 4.2%. Weak consumer sentiment may prompt the government to accelerate counter-cyclical policy support, notably in infrastructure investment. This would likely skew activity further towards heavy industry and upstream industrial corporates, at least in the near term. https://www.fitchratings.com/research/corporate-finance/china-corporates-face-mounting-demand-supply-challenges-19-04-2022

2.4 Discuss the possible consequences of high levels of inflation on individuals, firms and society as a whole. (15)