THE news yesterday that Guernsey’s rate of inflation has fallen dramatically from 5.8% to just 1.2% in a space of three months will be taken as evidence of how badly the credit crunch has affected the economy here and elsewhere.

To the extent that it is based on the Bank of England’s interest rate reduction response to the unprecedented turmoil created by the world’s banks, that is true.

But in what might be seen as the underlying economy, prices are still rising.

The RPIX figure, which excludes the effect of mortgage payments, had risen to 6.4% at the end of last year and has now fallen by two percent.

It is tempting to say ‘only’ two per cent given that the headline figure has reduced by more than twice that but what the statistics really show is just how much many islanders spend on buying their homes and the amount of money they spend each month repaying property loans.

The cost of housing here obviously reflects supply and demand and the strength of the economy and its full employment.

Yesterday’s figures combined with the earlier news that average property prices have continued to rise should be regarded as good news and an indication that the island will be less severely affected by the slowdown than other territories.

In the UK, which saw similar declines in headline and ‘core’ RPI statistics, the real concern is not inflation but deflation, caused by consumers holding off purchases in the expectation of lower prices if they wait long enough, something which is deeply damaging and a trend which is difficult to break.

Here, however, there is some indication that the level of interest in buying a new home is increasing. If translated into movement on actual sales – assisted by the banks issuing mortgages on acceptable terms – that will be very positive.

Another encouraging sign is that some local accountancy practices, unlike their UK or worldwide colleagues, are not cutting jobs and some here are actively recruiting because future prospects look bright.

To talk of green shoots is to invite ridicule, as Gordon Brown’s economic adviser Baroness Vadera found to her cost.

But it is possible to take some comfort in the latest figures and that has to be good news.