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1.1 Introduction

The Guernsey RPIX and RPI are measures of inflation used in Guernsey. They measure the change in the Prices of goods and services bought for the purpose of consumption or use by households in Guernsey. The indices are published quarterly by the States of Guernsey Policy and Research Unit. The calculation of the RPIX and RPI are based on the price change of items within a ‘shopping basket’. Whilst some prices rise over time, others will fall or fluctuate and the indices represent the average change in these prices. More detailed information on the calculation of these indices can be found at the end of this handout.

1.2 Headlines

• Guernsey’s annual inflation as measured by RPIX (‘core’ inflation excluding mortgage interest payments) was 2.8% in the year ending December 2011, compared to 3.0% in the year ending
• September 2011 and 2.7% in the year ending December 2010.
• In the UK equivalent RPIX figure for the year ending December 2011 was 5.0% (see Figure 1.2.1)1.
• Twelve of the fourteen RPIX groups increased in the year ending December 2011.
• The housing group made the largest upward contribution to the annual change in RPIX in December 2011, contributing 0.7 percentage points.
• The ‘all items’ RPI inflation rate was 3.2% in the year ending December 2011, compared to 3.5% inthe year ending September 2011 and 2.3% in the year ending December 2010.

The comparable figure for Jersey was unavailable at the time of publication and will be published on 25th January 2012.

Figure 1.2.1: Annual percentage change in RPIX

2.1 RPIX overview

The annual change in the RPIX was 2.8% at the end of December 2011, 0.2 percentage points lower than in September 2011 and 0.1 percentage points higher than December 2010 (Table 2.1.1 and Figure 1.1.1). During the three month period ending December 2011 RPIX increased by 0.2%, 0.1 percentage points less than during the same period in 2010. Quarterly changes in RPIX are subject to seasonal variations in price level and are typically higher in the first and second quarters of each year than in the third and fourth.

 The annual change in the UK RPIX was 5.0% at the end of December 2011. RPIX figures for Jersey in December 2011 were not available at the time of publication.

2.2 RPI Overview

The annual change in the RPI was 3.2% in December 2011, 0.3 percentage points lower than in September 2011 and 0.9 percentage points higher than in December 2010 (Figure 2.2.1 and Table 2.1.1).

 The annual change in the UK RPI in December 2011 was 4.8%. The equivalent figure for Jersey were unavailable at the time of publication. The quarterly change in RPI for the period ending December 2011 was 0.3%, 0.3 percentage points lower than the period ending December 2010. Similar to RPIX, quarterly changes in RPI are subject to seasonal variation.

3.1 Group analysis – annual

Figure 3.1.1 shows the annual percentage change in each of the fourteen RPI and RPIX groups. Figure 3.1.2 shows the number of percentage points contributed to the annual change in the indices by each group. Of the fourteen groups, only the housing group shows a different percentage change between the RPIX and RPI, as a result of the exclusion of the mortgage interest item in the calculation of RPIX. However, due to differences in the weighting of the groups (see Table 3.1.1) the contribution made by each group to the RPI and RPIX differs.

In the year ending December 2011 twelve of the fourteen groups increased. The fuel, light and power group experienced the largest annual percentage increase at 8.8%. However, the annual increase in this group was 4.2 percentage points lower than in September 2011 when it was 13.0%. This group contributed 0.4 percentage points to RPIX inDecember 2011.

Housing, which has the highest weighti ng in both RPIX and RPI made the largest contribution to the annual changes in both indices in December 2011. It contributed 0.7 percentage points to RPIX and 1.3 percentage points to RPI. Leisure goods experienced the largest negative change in the year ending December 2011, decreasing by 2.8% and contributing a downward movement of 0.2 percentage points to the annual change in RPIX.

3.2 Group analysis – quarterly

The average price level increased in seven of the fourteen groups in the quarter ending 31st December 2011 (Figure 3.2.1).

The clothing and footwear group experienced the largest quarterly change, decreasing by 3.2% in the quarter and contributing a downward movement of 0.1 percentage points to the quarterly change in RPIX (Figure 3.2.2).

 Negative quarterly changes were also seen in the alcoholic drinks; household goods, fares and othertravel; leisure goods; and leisure services groups. The largest positive quarterly change was in the fuel, light and power group, which increased by 2.0% in the quarter, contributi ng an upward movement of 0.1 percentage points to the quarterly change in RPIX.

Food; housing; personal goods and motoring also each made a positive contribution of 0.1 percentage points to the quarterly change.

3.2 Group analysis – quarterly

Within each group, specific items can be identi fied as having an upward or downward effect on the Index, details are given below. The figures presented in brackets are the quarterly changes for each group.

Food (1.0%)

Increases in the cost of meat and dairy products was partially off set by a decrease in the cost of rice and fl our

and their derivative products.

Alcoholic drinks (-0.8%)

A number of seasonal special offers on alcohol brought for home consumption led to a decrease in this group

in December 2011. This was partially off set by an increase in the cost of alcoholic drinks away from home.

Tobacco (0.7%)

There was a general increase in the cost of tobacco products this quarter.

Housing (0.8% RPIX, 1.0% RPI)

Increases in private rents were partially off set by decreases in the cost of some household maintenance

materials this quarter. Increases in the mortgage interest payment item exerted an additional upward

pressure on the RPI (this item is not included in RPIX).

Fuel, light and power (2.0%)

Increases in the cost of electricity, oil and coal led to an increase in this group this quarter.

Household goods (-0.4%)

Decreases in the cost of some furniture and appliances were partially off set by increases in stationary and

other household goods.

Household services (0.0%)

There was little overall change in the cost of household services this quarter.

Clothing and footwear (-3.2%)

Seasonal sales resulted in a decrease in the cost of clothing and footwear.

Personal goods (0.9%)

An increase in the cost over the counter medicines, cosmetics, dietary supplements and jewlery led to an

increase in this group this quarter.

Motoring (1.0%)

Increases in the cost of new vehicles and the cost of repairs and servicing lead to an increase in this group.

Fares & other travel (-2.3%)

Seasonal changes in the cost of air and sea fares resulted in a decrease in this group in the quarter ending

December 2011.

Leisure goods (-1.3%)

Decreases in the cost of electrical goods led to a decrease in this group.

Leisure services (-0.3%)

Deceases in the cost of holiday accommodation resulted in a decrease in this group this quarter.

Food away from home (0.2%)

There was a moderate increase in the cost of takeaway food this quarter.

4.1 Cumulative changes, reflation factors and indices

Indices are used to calculate the change in prices over time. The headline annual inflation in RPIX or RPI is the percentage change in the index over a year. However, it is possible to calculate percentage changes over longer periods of time.

There is an inflation calculator on our website (www.gov.gg/rpi), which you can use to calculate the percentage change in RPI between any two quarters from 1965 onwards. The inflation calculator can also calculate the reflated value of a monetary sum (e.g. a rental payment) over the specified period.

The effect of inflation is to erode the purchasing power of currency. The refl ation factors in Tables 4.1.1 and 4.1.2 can be used to inflate old values to approximate current prices.

To convert a price, multi ply it by the appropriate reflation factor. For example, using RPIX reflation factors, £100 in December 2001 is equivalent to £100 x 1.38 = £138 in December 2011.

Reflation factors can also be used in the opposite way. To calculate what £100 in 2011 would have been worth in 2001, divide by the relevant reflation factor.

When making long-term comparisons, it should be taken into account that the ‘shopping basket’ may have changed over time, since households may not be spending money on the same products as they did in the past.

Following each Household Expenditure Survey the index is rebased (i.e. set to 100). Tables 4.1.3 and 4.1.4 show the index value for the current quarter for each year of base. Full time series of index figures for each base is available on our website (www.gov.gg/rpi).

5.1 UK and Jersey inflation rates

Table 5.1.1 and Table 5.1.2 show the comparable RPIX and RPI inflation rates reported by the UK Office of National Statistics and the States of Jersey Statistics Unit2. There may be differences in the methodology used to calculate inflation and care should be taken when comparing figures from different jurisdicti ons.

Typically inflation in the three jurisdictions follow broadly the same trends. However, it should be noted that changes in taxation and other circumstances specific to a particular jurisdiction may have a significant impact on inflation. For example, the introduction of the Goods and Services Tax in Jersey in 2008 exerted an upwards pressure on both RPIX and RPI which was not experienced in either Guernsey or the UK. Similarly the temporary reduction of the UK VAT rate to 15% in 2009, its return to 17.5% in 2010 and the subsequent increase to 20% in 2011 will have influenced the inflation in the UK but had little impact in Guernsey and Jersey.

The higher cost of housing experienced in Guernsey and Jersey compared to the UK, and the resultant higher weighting of housing in the inflation rates of the Islands, means that changes in the cost of housing typically exert more inflationary pressure in the Guernsey and Jersey than in the UK. Differences in spending patterns in other areas, such as motoring, will also affect the relative effect of price changes on the indices.

 *Jersey inflation indices for December 2011 are scheduled for publication on 25th January 2012.

6.1 Methodology

The calculations of the RPIX and RPI are based on the price change of items within a ‘shopping basket’. Whilst a single household’s shopping basket may contain anywhere in the region of one to several hundred items, the ‘basket’ of goods and services used in the calculation contains over 2,000 items. This list of goods and services remains consistent every quarter in order to measure price changes over time.

Every household in the Island spends its income in different ways so it is impractical to monitor changes in the price of every single item on sale. Therefore, the Index contains a representation of what ‘typical’ consumers in a Guernsey household spend their money on. It should not be confused with a ‘cost of living’index, which will vary according to individual expenditure.

 The methodology is continuously monitored and is periodically audited and updated to ensure it remains accurate and representative.

 Further information regarding the methodology, calculation and uses of the inflation indices can be found in the Guide to the Guernsey Inflation Indices which is available online at www.gov.gg/rpi.

7.1 Contact details and further information

For more information on how the RPIX and RPI are calculated please see the Guide to the Guernsey Retail Prices Indices, which, along with the Inflation Calculator, is available via www.gov.gg/rpi.

Please contact Liz Laine (Research and Information Officer) for further information.

Policy and Research Unit
Sir Charles Frossard House
La Charroterie
St Peter Port
Guernsey
GY1 1FH

Tel: (01481) 717168  Fax: (01481) 713787

e-mail: policy.research@gov.gg

web: www.gov.gg/rpi

The next inflation bulletin (for March 2012) will be published at 9:30am on Friday 20th April.

As published by The Policy Council The States of Guernsey