SOARING inflation – which now stands at its highest rate in 20 years – is a cause for ‘grave concern’, Treasury Minister Anne Craine has admitted.
And Mrs Craine warned that the new government after the general election must be careful not to place even more pressure on already-squeezed household incomes.
Age Concern has also expressed concern at the spiralling inflation rates – saying it is ‘extremely bad news’ for the island’s elderly and all those on low or fixed incomes.
Figures released by the Treasury last week confirmed that the annual rate of inflation as measured by the Retail Price Index increased to 6.8 per cent in August, up from 6.4 per cent in July.
It’s the highest level since September 1991 when RPI inflation reached 6.9 per cent. Its highest level in recent years was in June 2008 when it peaked at 6.5 per cent.
Items of expenditure that have seen the biggest increase in price over the past 12 months have been food, fuel household goods and clothing. Stable foodstuffs such as potatoes, poultry, fish, cheese and milk products have seen the steepest hikes.
Mrs Craine said: ‘Inflation impacts on everybody – these are everyday commodities that people have to have. But it disproportionately affects those with less money.’
She added: ‘It’s a real concern because we can’t control inflation. External factors influence inflation and when you see the increases in price for fuel and lighting, it’s a grave concern for our community.’
Inflation rates in the Isle of Man are significantly higher than in the UK, where the RPI reached 5 per cent in July, but Mrs Craine said this was largely a reflection of the increased cost of transporting goods to the island.
But the minister sounded a word of warning to the next government.
‘What worries me is this next administration is going to have to look at reductions in government services and they are going to have to be very careful not worsen the situation and leave people with even less money in their pockets.’
She said that if, for example, tax rates were raised – although that would be something she said she would not favour as the island has to remain competitive – it would place additional financial pressure on households who were already finding it difficult to make ends meet.
Mrs Craine insisted the government was already doing what it could to help those on low incomes, including the system of Personal Allowance Credits and winter fuel payments.
But Personal Allowance Credits are already under review. ‘It’s questionable whether the best way to provide assistance to those on low incomes is through the tax system or distributed through social care.’
She said inflation was also an area of major concern for manufacturing but she hoped that the undertaken given to freeze electricity prices for the next few year would assist industries.
George Quayle, chief executive officer for Age Concern Isle of Man, said: ‘The latest inflation figure of 6.8 per cent for the Isle of Man is extremely bad news for older people and all others living on fixed or low incomes.
‘As those commodities showing the greatest inflation levels are food, fuel, heating and lighting the cost of living will rise faster for older persons, as research shows they spend a bigger proportion of their income on these items.
‘This last winter saw many pensioners struggle to meet the rising costs of gas and oil, which together rose 20 per cent in a 12-month period. Those who are least mobile or who spend longer in their homes will continue to have to balance comfort levels against their fear of the resulting heating bills.
‘People who have retired on a fixed income will see their spending powers significantly reduced if current inflation levels continue. With interest rates on savings typically around 3 per cent, those older persons who built up a “nest-egg” for retirement are seeing it being eroded and this is worrying for anyone in this position.
‘A recent report suggests that if inflation remains at this level, pensioners retiring this year are going to see a 60 per cent cut in their spending power in the next 20 years.
‘This situation is all the more concerning in the current financial climate on the Isle of Man against the background of the VAT revenue reduction which seems bound to lead to increased household expenditure and a reduction in income for people of all ages.’
In other figures released by Treasury last week there was better news, with the announcement of a welcome fall in unemployment.
During August the number out of work fell by 60 to 830, an unemployment rate of 1.9 per cent. However, half of the reduction is accounted for by people moving away from jobseekers’ allowances and on to other benefits.
Mrs Craine said the island was bucking the trend, with countries across Europe seeing unemployment rates spiral.
But she insisted it was important not to be complacent. ‘We’ve got to get greater diversity of employment and create employment opportunities.’
Mrs Craine is bidding to retain her seat as a Ramsey MHK in this month’s general election. The other candidates in the constituency, which has two MHKs are Allan Bell, Linda Bowers-Kasch, Lawrie Hooper, John McDonough and Leonard Singer.