Inflation cycle affects us all

INFLATION looks like it’s on the way down, but inflationary pressures persist and control of wage claims remain important for returning economic conditions to an even keel.

After a prolonged period of low inflation, the escalation of the past 18 months has been hard for all, from the lowest-earning in society to the largest companies, not to mention the government.

But with RPIX, excluding mortgage interest payments, down from 8.5 to 8% in the past quarter, it becomes increasingly crucial that wage settlements too are tempered.

Andrew Bailey, governor of the Bank of England, has said that ‘stubborn elements’, including wage-setting, are disrupting the easing inflation picture. Too many pay settlements are higher than desired for the bank’s targets, and its inflation forecasts could be at risk if the government was to fund large pay rises through public borrowing rather than tax increases, he said.

Two of the island’s major supermarkets have just released annual results – more than reasonable in the circumstances, but both severely impacted by inflation, particularly cost-price inflation, running even higher than retail price inflation.

Supermarkets are investing millions to keep those costs down, they said, and until inflation falls steadily, their outlook for prices is uncertain. And for island-based businesses with a finite market, ongoing inflation inevitably creates further cost pressures. It’s a vicious cycle that affects us all.

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