PFCO October 2015 – Latest Inflation figures published by Stats office of +0.1% is lower than expected.

Underlying inflation as measured by RPIX is the lowest on record (since 2000).

This is encouraging.

Fuel bills, fares/travel, motoring, household goods, clothing and food prices all lower than in June and all (except fares and travel) below what they were in September 2014.

Lower commodity prices leading to lower food and energy prices help boost consumers purchasing power and support economic activity, particularly in a growing economy like that in Jersey.

RPI in Jersey is the same as that in the UK on a comparable measure.

Jersey RPI is below that in Guernsey in terms of all measures.

Consumers are continuing to see the benefits of lower food and energy costs driven down by lower commodity prices drive.

There are lower prices in a number of other areas in Jersey too.

It’s important inflation remains as low as possible.

Government policy is that we want to ensure that inflation has helped to reverse the situation in the post financial crisis years where inflation outstripped earnings to one where earnings increased by more than inflation in the last 3 years.

Low inflation is good for competitiveness at a time when the emphasis is on increasing economic growth/creating new employment opportunities.

RPI low income and RPI pensioners are 0.0% and -0.6% respectively, showing that all groups are benefitting from low inflation.

Continued low inflation compliments other positive economic data releases recently

– strong GVA growth in 2014,
– strong employment growth in 2015,
– real earnings growth in 2015,
– confidence is still much improved from the crisis years albeit the last business tendency survey is less positive which need to remain vigilant about

In terms of controlling inflation, there are three main government policy areas which remain the same:

Fiscal Policy Panel advice

The Council of Ministers is has taken on board the advice from our Chief Economist and FPP.

That means that in the short term objective is to make sure fiscal policy acts in a countercyclical way. This means stimulus (spending more than income) – should be notified to be added in short-term to boost the recovery.

However, we should at the same time address capacity concerns in construction sectors immediately. There are a number of public and private sector capital and contraction projects that run the risk of pushing building costs higher. This needs to be addressed not by delaying these projects but by boosting capacity and productivity of the sector. In terms of labour this means getting as many unemployed people as possible into good jobs in the sector and being flexible with short term licenses for specific projects, especially where arrangements are made to house the workers brought in.

When economy has returned to growth we should run tighter fiscal policy when the economy has recovered.

There are important linkages to both the recent MTFP debates and upcoming Budgets debate.

Specifically we need to ensure we balance the budget at the right time (2018/19) to prevent adding to inflationary pressure in the economy.

Competition

We plan to to strengthen competition policy. This will help keep prices low by driving efficiency.

I am meeting today to discuss the Oxera review which is advised by Sir John Vickers.

This review is underway looking at strengthening the competition framework and CICRA fuel price review also underway to ensure fuel markets continue to operate in consumers interests.

Productivity and Innovation

The government is implementing the Strategic Plan priorities on growth and productivity.

Ministers and their departments are focusing on the supply-side by improving policies in all the areas of skills, innovation, enterprise and inward investment.

The Innovation Review published in September by Tera Allas is helping inform how we achieve this. We are working on the action and I was delighted that the innovation review got such top billing in this week’s very successful FinTech conference.

Inflation is expected that it will rise from current low rates back to more normal levels and closer to target over the next few years, however this is good news.

There is an encouraging amount of data showing that Jersey’s economy is now recovering.

This low inflation period is particularly helpful in securing this sustained recovery.

Blog by Philip Ozouf – October 2015

 

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