Following the release of the latest Guernsey Quarterly Inflation Bulletin, which showed that Guernsey’s inflation rate declined to 3.9% at the end of June 2025, Richard Hemans, IoD Guernsey’s lead on economics, commented:
“Guernsey’s inflation continues its slow downward trajectory, falling from 4.2% in March to 3.9% in June 2025. This is still much higher than Jersey’s 2.6%, but the gap is closing because their RPI actually increased over the last quarter. For the first time in many quarters, Guernsey’s inflation rate is now lower than the UK’s, where RPI stands at 4.4% — a welcome development but not yet a cause for complacency.
The divergence with Jersey is narrowing but remains significant at 1.3 percentage points. Crucially, Jersey’s inflation rose slightly this quarter, while Guernsey’s is still falling. In Jersey, housing costs fell by 1.4%, pulling headline inflation down by 0.3 percentage points. In contrast, Guernsey’s housing costs rose by 6.9% year-on-year and contributed 1.3 points to overall inflation. This divergence reflects two factors: Guernsey’s persistent housing shortage, which has kept rents and property prices elevated, and differences in how mortgage interest costs are calculated — Guernsey averages rates over time, which dampens the effect of recent base rate cuts, whereas Jersey uses current rates, allowing faster adjustment.
Household services and food were the other major drivers of Guernsey inflation, rising 5.7% and 4.4% respectively. Food inflation, which also remains high in Jersey (4.1%) and the UK, has a disproportionate social impact, squeezing lower-income households hardest. Tobacco (10.3%) also made a small but notable contribution.
Core inflation, excluding food and energy, is 3.2%, down from 4.2% in March 2025 but still above Jersey’s 2.0%. The reduction in core inflation underlines the impact of volatile food and energy prices on local inflation, with recent electricity price increases contributing 0.3% to the latest figures. Core inflation is therefore coming down faster than the headline figure suggests.
Services inflation accounts for 2.9 percentage points of Guernsey’s 3.9% RPI, compared with 1.0% from goods. The biggest service-sector pressures stem from rents, fees and subscriptions, mortgage interest, electricity, and domestic and personal services — areas where market concentration and labour shortages are driving persistent cost increases.
In contrast, Jersey’s inflation is slightly more balanced, with 1.7 percentage points from services and 0.9% from goods — showing broadly similar goods inflation but lower domestic price pressures. This highlights the structural challenges facing Guernsey’s housing and labour markets.
The States’ forecast of 3.2% inflation by year-end looks achievable, but further progress will depend on easing housing costs and avoiding wage-price spirals. Persistent inflation at current levels risks eroding competitiveness and living standards.
To tackle these domestic pressures, Guernsey must accelerate housing development, expand workforce capacity, and improve productivity in key service sectors. Fiscal discipline, targeted immigration, and greater competition in key markets are also essential to ease inflationary pressure over time. While monetary tools are out of our control, the island cannot afford policy inaction.”