It is about prices as well as pay

Yesterday’s data, which revealed that prices, as measured by the retail price index, have risen by 3.1 per cent over the past year and by 0.8 per cent in the past three months, should remind us that excessive inflation remains a real danger.

The prospect of a runaway wages and prices spiral has not been a major concern in recent years, but just because inflation has persisted at low levels, we should not imagine that it has ceased to pose any threat.

Anyone who lived through the 1970s, when double-digit increases in prices and wages were the rule rather than the exception, will recall just how damaging such conditions can be and how quickly they can become a regrettable fact of life if government fails to keep a firm hand on the economy.

In the wake of the latest figures, Economic Development Minister Alan Maclean has called for extreme restraint on the pay front. This is most unlikely to be a popular message, but it recognises the realities of the Island’s situation. At present, growth is minimal or entirely absent, so it would be extreme folly to contemplate paying anyone at a level that outstrips what is being earned.

Senator Maclean might, however, have acknowledged that there are two essential elements in inflationary mechanisms. The costs of goods and services are also important. He could, and perhaps should, have balanced his message by calling for price restraint as well as urging employers to avoid pay awards.

It is, meanwhile, a mistake to rely too heavily on comparing the situation here with what is happening in other jurisdictions. That said, it is interesting to note that whereas Guernsey is doing slightly better than we are as far as inflation is concerned – with an RPI of 2.9 per cent – there is increasing alarm in the UK, where the rate is now 5.3 per cent, and in the Isle of Man, where it is an eye-watering 6.7 per cent.

Given that GST at five per cent will make an impact on prices when it is introduced at the end of next month, it is highly probable that the rate of inflation will rise before there is any prospect of reversing the present trend. But complacency must be avoided at all costs if the full economic recovery that we all crave is to be achieved.