Success in tackling inflation The latest figures show that in September underlying inflation RPI(X) (RPI excluding the cost of house purchases) increased by 2.2 per cent during the year, which is within the States' 2.5 per cent target level. RPI(X) has been within 0.5 percentage points of the States' target level for all but two quarters in the last three years, as shown by Figure 6. Despite success at keeping inflation
down over the past few years, it remains an issue of concern to policy-makers in the island, with high inflation in Jersey creating uncertainty and potentially undermining efficiency and the competitiveness of businesses in international markets. The trend rate for RPI in Jersey over
recent years has been around four per cent and has been more volatile, with changes in Bank of England base rates playing a significant part. The four separate 0.25 per cent increases in the base rate over the last eighteen months or so will help to contain inflationary pressure in the longer term. However, there has already been one subsequent reduction in the base rate in response to the effects of the credit crunch and there may be more to come. Average earnings increased by 4.7 per
cent during the year to June 2007, which was more than the underlying rate of inflation and reflected improved productivity in the finance industry and wider economy.
Employment increasing Employment in Jersey has been close to 50,000 people since 2000, fluctuating with economic activity levels. Recently though, employment has increased markedly (to 51,750 people) - mostly through greater participation by local people and partly through inward migration. The recent growth has been predominantly in the finance and construction sectors, reflecting growing confidence in the strength of the Jersey economy. The increase in activity in construction will also bring important supply-side improvements. The ILO unemployment rate in Jersey is just above two per cent. Changes in employment tend to lag
behind changes in economic growth, so the continued increase in employment is an indication that the economy
maintained its momentum in the first half of 2007 at least.
House prices rise Housing costs account for a substantial part of typical household expenditure in Jersey.
Figure 7 shows
that prices in the housing market were stable between 2002 and 2004, but more recently average house prices have started to increase - three per cent in 2005, 6.5 per cent in 2006 and 10 per cent (based on the first three quarters) in 2007. This compares
with the experience in the U.K., where average house price increases were 49 per cent between 2002 and 2004, three per cent during 2005, almost 10 per cent in 2006 and 11 per cent in 2007. The overall
Figure 5: Employment up once more in the private sector - Private and public sector employment in December of each year. Source: States of Jersey Statistics Unit.
Figure 6: RPI(X) generally within 0.5 per cent of target in the last few years. Source: States of Jersey Statistics Unit..
average (mix adjusted) price of dwellings sold in Jersey in the third quarter of 2007 was £421,000, up 18 per cent on the 2006 level. While this is good news for home owners, it also raises affordability issues with earnings growth clearly not keeping pace with that of house prices.
Challenges for the future With strong economic growth, high employment, low inflation and a new Stabilization Fund, Jersey remains in a very strong position to face the
Figure 7: Jersey House Price Index (Average for 2002 = 100) Source: States of Jersey Statistics Unit.
challenges of the future. Efforts by the States to diversify as well as grow the economy will help provide increased stability and counter-balance any future cyclical downturn in the financial sector. Fiscal regime changes - There are
some fundamental changes to Jersey's fiscal regime planned and in progress. A move to a "0/10" corporate system of taxation (a standard rate of corporate income tax of zero per cent and a special