Gloom at the Treasury as RPI hits 4.9%

By Gemma Hockey

INFLATION is up to 4.9% - a rise of 0.2% since June. The latest increase is low but there were large rises during previous quarters since September 2006, when RPI was just 3.5%.

Treasury and Resources minister Lyndon Trott said he was disappointed at the latest headline figure, particularly as the September quarter is used by many employers as the basis for negotiating annual pay increases.

‘But we do believe that inflation in Guernsey will fall significantly through 2008.

‘We believe that this figure is probably topping out and will come down,’ he said.

Housing continues to be the largest contributor to RPI, at 2.6% of the overall figure.

The increasing cost of servicing a mortgage has resulted from the combined effects of rising prices and interest rates, with the Bank of England having set another increase during the quarter.

The next highest contributors were food and alcohol at 0.5%. The cost of wines, spirits and fortified wines purchased from retailers increased this quarter.

With the exception of cider, the price of alcohol has risen over the past 12 months following duty increases.

It is expected that the next move from the Bank of England will be downwards from the current 5.75% base rate.

Deputy Trott welcomed a slight fall to 2.9% in the RPIX figure, which excludes housing from the calculation and is preferred in some jurisdictions.

‘A downward move is the direction we want to see,’ he said.

Low inflation is a key element of sustaining the economic and taxation strategy the States has adopted from 2008, allowing positive growth in real terms.

The UK’s RPI figure is 1% below Guernsey’s at 3.9%, a fall from 4.4% in June. Jersey’s figure is due to be released on Wednesday.

The index is the measure of inflation and reflects changes in prices for goods and services.

Clothing and footwear was the only group to have a downward effect on the index over the past 12 months, contributing to -0.3%.

Swoffers director Spencer Noyon said: ‘The RPI and housing figures reflect a buoyant market throughout the course of the year to date, which has seen the number of sales and the value of sales exceed comparable figures from last year,’ he said.

‘The last quarter of 2007 seems to be noticeably quieter, but it remains to be seen if that will continue throughout the rest of the year.’

Article posted on 20th October, 2007 - 12.00am