GUERNSEY has officially entered deflation for the first time since records began in 1965.
The retail price index stood at minus 1.2% at the end of March, although the RPIX figure, which excludes mortgages, stood at 3.3%, down on December’s 4.6%.
Chief Minister Lyndon Trott (pictured) said he wanted people to concentrate on the new RPIX figure.
‘The first thing to remember is that we are not in a deflationary environment,’ he said. ‘The RPI rate is due to exceptional movements in the interest rate last year. Basically, the drop into negative territory of RPI is down to extreme movements of the Bank of England base rate from 5.25% to 0.5% from the first quarter of 2008 to the first quarter of 2009.’
RPI dropped from 1.2% in December and from 4.8% in March last year.
Jersey was still experiencing inflation at the end of March with an RPI of 2.1% and the equivalent figure in the UK was minus 0.4%
Deputy Trott said Guernsey’s key figure was the core inflation rate at 3.3%. That showed inflationary pressures still remained in the economy.
‘It is very close to what I consider a reasonable target rate of 3%,’ he said.’
RPIX fell from 4.3% in March 2008.
‘Core inflation is slowing, which is good news, but the core rate is still 3.3%.
‘For all those without a mortgage, the cost of living is still rising, but at manageable levels.’
He said Guernsey was influenced by things out of its control. ‘The isle of Guernsey does not set the UK interest rate policy, we are subject to it,’ he said. Sometimes the island gained, sometimes it did not.
‘On this occasion, if you have a variable rate mortgage you are gaining, and if you don’t have one, core inflation is slowing, and that is also a benefit to the consumer.’
The fuel and leisure items monitored in the cost of living ‘shopping basket’ also decreased during the year, but 11 of the fourteen categories increased or remained stable.
Food, alcohol, household services and leisure services groups contributed to the largest increases.
Fortis Reads Private Clients director Fran Snoding said he thought Jersey’s higher RPI was down to the introduction of new taxes.
‘It is interesting to note also that Jersey’s RPI and RPIX at 2.1% and 5.2% are both perhaps surprisingly higher than Guernsey’s. I anticipate that this is in no small way due to the controversial GST which was introduced in Jersey last year,’ he said.
He said Guernsey’s rates would affect consumer confidence.
‘Clearly the Guernsey RPI figure of minus 1.2% is a headline grabber, as it indicates deflation which is not good for the economy because if people expect prices to come down, they generally defer purchases which in itself dampens economic activity, and so on it goes,’ he said.
But his overall analysis supported Deputy Trott’s.
‘What we need to realise is that the rate of minus 1.2% is caused by artificial lows in interest rates over recent months.
‘Take out mortgage interest, which is what RPIX basically does, and the rate is 3.3%, clearly demonstrating general steady inflation, which is better for the economy than a deflationary period.’
Article posted on 23rd April, 2009 - 2.29pm
Most Commented: