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Target Inflation To Include Housing Costs

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Don´t think this article has been posted. Wasn´t it Labour who removed HPI from the Inflation data or am I getting muddled up in the information?

Target inflation to include housing costs

Housing costs should be included in the headline rate of inflation, or the consumer prices index (CPI), the new Chancellor George Osbourne has said.

In a letter to the Bank of England Governor today, Osborne said: 'As we have discussed, over the longer term I would welcome your views on how we might accelerate the process of including housing costs in the CPI inflation target.'

The Office for National Statistics today reported that CPI inflation for April came in at 3.7%, higher than the 3.5% that the City had expected, and well above the 2% target set by the Government.

Mervyn King's obligatory letter to Osborne - to explain why inflation was more than 1% above target - blamed 'temporary factors' like high oil costs, a weaker pound and the rise in VAT to 17.5%. He argued inflation would fall back to its 2% target 'within a year'.

But Osborne's reply indicates that a new volatile factor will soon be included in the index. It appears that depending on what Osborne means by 'housing costs', the headline rate of inflation that the Bank targets will be adjusted towards something like the current retail prices index (RPI) or RPI-X.

RPI-X - which has previously been the target rate for the monetary policy committee - includes housing costs like insurance, estate agents fees and council tax. RPI meanwhile also included mortgage interest payments.

They are typically more volatile than CPI and give a higher reading. RPI jumped to 5.3% today from 4.4% in March as mortgage interest payments edged higher last month, in contrast to a year earlier when lenders passed on rate cuts. RPI-X meanwhile rose to 5.4% from 4.8%.

The ONS collects about 120,000 prices every month for a 'basket' of about 650 goods and services. The change in the prices of those items is used to compile the two main measures of inflation: CPI and RPI.

The Bank of England uses the CPI as its inflation target while the RPI is used to calculate increases in pensions and other state benefits.

• RPI includes mortgage interest payments, so changes in the interest rates will affect RPI.

• The RPI also includes council tax and some other housing costs not included in CPI.

• The CPI includes some financial services not included in the RPI

• The CPI is based on a wider sample of the population for working out weights.

• RPI-X is the same as RPI minus mortgage interest payments.

• So RPI-X is closer to CPI but not exactly same.

And what about RPI-Y?

• This is RPI-X minus taxes such as VAT and excise duty. Thus a cut in VAT would reduce RPI but not reduce 'core' RPI-Y.

• It is referred to as 'core inflation' because it strips out volatile elements in the CPI and RPI like VAT, excise duties and mortgage interest.

http://www.thisismoney.co.uk/news/article.html?in_article_id=504743&in_page_id=2&ct=5

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Big bold statement for we George!

Housing costs should be included in the headline rate of inflation, or the consumer prices index (CPI), the new Chancellor George Osbourne has said.

In a letter to the Bank of England Governor today, Osborne said: 'As we have discussed, over the longer term I would welcome your views on how we might accelerate the process of including housing costs in the CPI inflation target.'

The Office for National Statistics today reported that CPI inflation for April came in at 3.7%, higher than the 3.5% that the City had expected, and well above the 2% target set by the Government.

Mervyn King's obligatory letter to Osborne - to explain why inflation was more than 1% above target - blamed 'temporary factors' like high oil costs, a weaker pound and the rise in VAT to 17.5%. He argued inflation would fall back to its 2% target 'within a year'.

But Osborne's reply indicates that a new volatile factor will soon be included in the index. It appears that depending on what Osborne means by 'housing costs', the headline rate of inflation that the Bank targets will be adjusted towards something like the current retail prices index (RPI) or RPI-X.

RPI-X - which has previously been the target rate for the monetary policy committee - includes housing costs like insurance, estate agents fees and council tax. RPI meanwhile also included mortgage interest payments.

They are typically more volatile than CPI and give a higher reading. RPI jumped to 5.3% today from 4.4% in March as mortgage interest payments edged higher last month, in contrast to a year earlier when lenders passed on rate cuts. RPI-X meanwhile rose to 5.4% from 4.8%.

Hmm. I don't know what is the driver for this one.

Let me have a stab at it though....Wee George fiddles the figures, including the huge HPI spike that Britain saw under the Labour government.... makes for a tasty chart and a nice bit of anti-labour propaganda; seeing as it is highly likely that we will have another election in less than five years, ergo, blue rats need to defame the red rats.

Yes, looks like politics 101.

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Don´t think this article has been posted. Wasn´t it Labour who removed HPI from the Inflation data or am I getting muddled up in the information?

Target inflation to include housing costs

Housing costs should be included in the headline rate of inflation, or the consumer prices index (CPI), the new Chancellor George Osbourne has said.

In a letter to the Bank of England Governor today, Osborne said: 'As we have discussed, over the longer term I would welcome your views on how we might accelerate the process of including housing costs in the CPI inflation target.'

The Office for National Statistics today reported that CPI inflation for April came in at 3.7%, higher than the 3.5% that the City had expected, and well above the 2% target set by the Government.

Mervyn King's obligatory letter to Osborne - to explain why inflation was more than 1% above target - blamed 'temporary factors' like high oil costs, a weaker pound and the rise in VAT to 17.5%. He argued inflation would fall back to its 2% target 'within a year'.

But Osborne's reply indicates that a new volatile factor will soon be included in the index. It appears that depending on what Osborne means by 'housing costs', the headline rate of inflation that the Bank targets will be adjusted towards something like the current retail prices index (RPI) or RPI-X.

RPI-X - which has previously been the target rate for the monetary policy committee - includes housing costs like insurance, estate agents fees and council tax. RPI meanwhile also included mortgage interest payments.

They are typically more volatile than CPI and give a higher reading. RPI jumped to 5.3% today from 4.4% in March as mortgage interest payments edged higher last month, in contrast to a year earlier when lenders passed on rate cuts. RPI-X meanwhile rose to 5.4% from 4.8%.

The ONS collects about 120,000 prices every month for a 'basket' of about 650 goods and services. The change in the prices of those items is used to compile the two main measures of inflation: CPI and RPI.

The Bank of England uses the CPI as its inflation target while the RPI is used to calculate increases in pensions and other state benefits.

• RPI includes mortgage interest payments, so changes in the interest rates will affect RPI.

• The RPI also includes council tax and some other housing costs not included in CPI.

they really must think we are simple.

put in the bull trap,then include the (sonn to be rapidly declining HP coz of extra CGT) into the index,and you end up with books just as cooked as under NuLabia.

food prices will be going through the roof,but offset by lower housing costs.

• The CPI includes some financial services not included in the RPI

• The CPI is based on a wider sample of the population for working out weights.

• RPI-X is the same as RPI minus mortgage interest payments.

• So RPI-X is closer to CPI but not exactly same.

And what about RPI-Y?

• This is RPI-X minus taxes such as VAT and excise duty. Thus a cut in VAT would reduce RPI but not reduce 'core' RPI-Y.

• It is referred to as 'core inflation' because it strips out volatile elements in the CPI and RPI like VAT, excise duties and mortgage interest.

http://www.thisismoney.co.uk/news/article.html?in_article_id=504743&in_page_id=2&ct=5

higher food/fuel prices,but that's ok.

lower housing(they certainly will be with the new CGT regime) costs so inflation nice and stable.

sorted.

and you thought NuLabia were the only ones cooking the books.

they really must think we are simple.

Edited by oracle

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higher food/fuel prices,but that's ok.

lower housing(they certainly will be with the new CGT regime) costs so inflation nice and stable.

sorted.

and you thought NuLabia were the only ones cooking the books.

they really must think we are simple.

Seriously there's nothing wrong with that. If housing cost deflation is occuring at such a rate as to offset other inflation then what's the problem?

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If it's mortgage costs then without paying people to have a mortgage they can't get lower.

Correct. It all depends on how they choose to measure it. If they choose actual house prices then there will be mass poverty and riots the likes of which have never been seen.

If it's by mortgage payments I'm not sure what they will do... if they raise interest rates to combat inflation if would directly push up RPI by increasing all the tracker rates!

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Told you they'd throw the kitchen sink at it.

they will have to let house prices deflate for it to work though, otherwise it is pointless. Besides, we are heading back to food and energy being 30% of the RPI basket, which is sorely needed for global rebalancing. Last 15 years of low food costs are an anomaly

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Seriously there's nothing wrong with that. If housing cost deflation is occuring at such a rate as to offset other inflation then what's the problem?

Excluded on the way up (CPI under Labour); included on the way down (RPI to come). That's what's wrong with it.

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Excluded on the way up (CPI under Labour); included on the way down (RPI to come). That's what's wrong with it.

But you can't just keep on using a broken measure forever, either. I think he's implicitly acknowledging the inevitable distortions, and the need to minimise their effect:

'As we have discussed, over the longer term I would welcome your views on how we might accelerate the process of including housing costs in the CPI inflation target.'

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Seriously there's nothing wrong with that. If housing cost deflation is occuring at such a rate as to offset other inflation then what's the problem?

What happens if inflation is at 5% and HPD is occurring at say 10%?

Edited by rented

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Keeping rates low?

That would be my guess, it also implies they would begin to let prices fall.

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What happens if inflation is at 5% and HPD is occurring at say 10%?

Wage earners are screwed but that will have to happen for a very long time anyway.

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  • 277 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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