Economists predict inflation in Jersey will be 'stickier' than forecast

Jersey's September inflation rate might not be much below the 5% recorded in June. That is the concern of economists who advise the government...

The Fiscal Policy Panel says there are 'some indications' that inflation might 'be stickier than previously forecast'.

In its annual report to Ministers, in which it advises on government spending and savings plans based on the medium to long-term outlook, the panel expresses concern that higher spending in the 2025 Budget will 'lead to greater persistence in inflationary pressure', keeping the rate higher for longer.

Inflation fell to 5% in June, down from 5.7% in April and 7.5% in December 2023.  It had peaked at 12.7% in December 2022.

The UK's August 2024 rate was 2.2%.  Jersey's next RPI data will be published on 23 October.

The FPP is also warning of slower economic growth, and advising the government to save more.

It says, while the island's public finances have enjoyed a boost in revenue thanks to strong profits in the banking sector because of increases in global interest rates, overall economic growth is expected to ' fall back to much more moderate levels'.

It says the strong revenue growth of recent years hasn't been ploughed back into savings funds, which are below its recommended levels.

"The strong increase in government revenues since 2022 has funded a substantial increase in day to day expenditure, the majority of which is health related.

"This trend is continued in Budget 2025. Government income is rising less quickly than expenditure and as a result the near-term fiscal position has deteriorated with an increased operating deficit."

The panel says the government's fiscal policy needs to 'give greater emphasis to these medium-term challenges'.

It is calling for a commitment that extra money Jersey receives when a new tax on the profits of large multinational companies takes effect is invested and put into savings.

The government has estimated public finances could get a £50 million boost from the OECD's so-called Pillar Two  - a global crackdown on companies moving their profits around.

The FPP says a formal policy should be set that the extra income is used to rebuild reserves.

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