Housing Costs Must Be Included In Inflation Target, Says Osborne

[The Masked Tulip]

Chancellor George Osborne has backed plans to include housing costs in inflation measures, reversing the move many blame for allowing the housing bubble.

In a letter to Bank of England governor Mervyn King, Osborne said: '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.'

Back in 2003, then chancellor Gordon Brown changed the target the Bank of England used to measure inflation, stripping housing costs from the main measure.

King has repeatedly said the Monetary Policy Committee was unable to use interest rates to slow soaring house prices because it was charged with targeting CPI at 2% and anything else was outside the bank's remit.

Back in April, Osborne hinted a Conservative government would reverse Brown's move.

'There is a considerable debate about whether the current CPI inflation target covers the full cost of living, and whether it should be broadened to include housing costs,' Osborne said then.

Today's inflation data shows what a difference the two measures make as consumer prices rose 3.7% in the year to April and RPIX rose by 5.4%, up from 4.8 per cent in March.

Osborne said today that the Treasury-compiled comparison of Independent Forecasts shows the average CPI inflation forecast is 2.1% in the last three months of this year and 1.7% in the final three months of 2011.

Full article at http://www.citywire.co.uk/adviser/-/news/other/content.aspx?ID=400432

[Darkman]

Chancellor George Osborne has backed plans to include housing costs in inflation measures, reversing the move many blame for allowing the housing bubble.

Good!

[erranta]

They wouldn't be doing this unless they know they are going to screw the population over again - just like Brown did!

I agree housing needs to be brought in, but there needs to be a level set where falling house prices vs increasing everyday living costs need to be accounted for when working out pensions etc

They know damn well that houses at some point will collapse and this will artificially skew against rising food, fuel, clothing and transport costs which will not be reflected in the rises given to pensioners etc!

This dual system of measuring needs to be set until house prices have flattened out from the biggest boom in the history of the UK.

Edited May 18, 2010 by erranta

[Kazuya]

Stagflation.

[Guest Steve Cook]

Full article at http://www.citywire.....aspx?ID=400432

If I were feeling cynical, I might suspect that Osborne wants housing to be included in inflation figures because it will drag the overall figures down. In other words, while all other assets go to the roof in price, a HPC will drag the figures in the opposite direction.

Funny how housing was not included in overall inflation figures when we had HPI.

Edited May 19, 2010 by Steve Cook

[Bloo Loo]

I think you'll find it -5% housing and +8% everything else but rates will be kept artificially low because suddenly in a bubble we include housing costs.

-10+11

[Laura]

-10+11

Oy vey, growth already!

[Bloo Loo]

Oy vey, growth already!

nah, what I meant was a variation of the agreement symbol, +1, in a fun and topical manner.

hows the naked shorts?

[Ben from Dover]

If I were feeling cynical, I might suspect that Osborne wants housing to be included in inflation figures because it will drag the overall figures down. In other words, while all other assets go to the roof in price, a HPC will drag the figures in the opposite direction.

Funny how housing was not included in overall inflation figures when we had HPI.

spot on - this is effectively the same thing as Gordon Brown did when he took them out. Distort the figures so that they politically excuse low interest rates and the blowing of another bubble.

It is completely ridiculous that the state (as a whole including both parties) could exclude housing costs while they were rising so dramatically than then suddenly decide to include them now that they will almost certianly be a drag on inflation.

It is pure politics and really caused me to lose whatever faith I did have that the conservatives would be better than Labour.

The only positive is that it is in effect a government admission that house prices are not going to rise over the next decade or so!

[Lepista]

I'm all for this, as long as it's backdated to when housing was taken out.

[Bloo Loo]

spot on - this is effectively the same thing as Gordon Brown did when he took them out. Distort the figures so that they politically excuse low interest rates and the blowing of another bubble.

It is completely ridiculous that the state (as a whole including both parties) could exclude housing costs while they were rising so dramatically than then suddenly decide to include them now that they will almost certianly be a drag on inflation.

It is pure politics and really caused me to lose whatever faith I did have that the conservatives would be better than Labour.

The only positive is that it is in effect a government admission that house prices are not going to rise over the next decade or so!

nonesense...house prices wont be included...IO mortgages at BoE -.75% will be.

I read everywhere that the cost of housing has never ever ever been cheaper.

[Pent Up]

nonesense...house prices wont be included...IO mortgages at BoE -.75% will be.

I read everywhere that the cost of housing has never ever ever been cheaper.

Surely it must be SVR? Which is not very cheap.

[Ben from Dover]

nonesense...house prices wont be included...IO mortgages at BoE -.75% will be.

I read everywhere that the cost of housing has never ever ever been cheaper.

Assuming they are supposed to track the cost of living through the things that normal people can / do buy the only prices that should be included are 'studio' (bedsit) flats with kitchens in their lounges, and 'shower rooms' too small for a bath - since that is all that an average working couple in the UK can afford.

[angrypirate]

'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.'

Note that this does stress the longer term. In my opinion we are looking at years. The government knows theres a bust coming so probably want it to happen sooner rather than later. Onces its out of the way they can reset everything and start a fresh. Its not in their interests to prolong the boom so that the bust happens in 4 and a half years time.

[GordonBrownSpentMyFuture]

'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.'

Note that this does stress the longer term. In my opinion we are looking at years. The government knows theres a bust coming so probably want it to happen sooner rather than later. Onces its out of the way they can reset everything and start a fresh. Its not in their interests to prolong the boom so that the bust happens in 4 and a half years time.

Nice, angrypirate. Very nice.

"Back in 2003, then chancellor Gordon Brown changed the target the Bank of England used to measure inflation, stripping housing costs from the main measure."

So how long did it take Brown to "accelerate the process" of excluding housing costs?

[Bloo Loo]

Nice, angrypirate. Very nice.

"Back in 2003, then chancellor Gordon Brown changed the target the Bank of England used to measure inflation, stripping housing costs from the main measure."

So how long did it take Brown to "accelerate the process" of excluding housing costs?

roughly 14% annual increase in money supply since then has gone somewhere...inflation always goes somewhere.

I wonder which asset has been inflated above the rate of everyday items?

[Bloo Loo]

Surely it must be SVR? Which is not very cheap.

why any official rate at all.

they dont price anything else at an official rate....they take the "street price".

if they are doing anything include housing costs, then they should be the price people are paying...PLUS the repayment vehicles and insurance.

[headmelter]

It is pure politics and really caused me to lose whatever faith I did have that the conservatives would be better than Labour.

Feck that nearly made me wet myself. . . . .

[Blue Peter]

Full article at http://www.citywire.co.uk/adviser/-/news/other/content.aspx?ID=400432

King has repeatedly said the Monetary Policy Committee was unable to use interest rates to slow soaring house prices because it was charged with targeting CPI at 2% and anything else was outside the bank's remit.

Apart from economic stability also being part of their remit; which they are presumably using now to justify their cutting and keeping interest rates at almost zero, despite CPI being considerably above target,

Peter.

[Laura]

roughly 14% annual increase in money supply since then has gone somewhere...inflation always goes somewhere.

I wonder which asset has been inflated above the rate of everyday items?

Is an ego an asset?

[JustYield]

Is an ego an asset?

I've no id.

Seriously though, on the face of it this is what many here have been calling for for years. Yes, even five years ago we spotted that politicians might cynically make use of falling house prices to reduce the reported inflation. But I sincerely think that this is not what this is about this time.

And yes they will want the bad times to happen earlier than later in their term.

[Tired of Waiting]

They wouldn't be doing this unless they know they are going to screw the population over again - just like Brown did!

I agree housing needs to be brought in, but there needs to be a level set where falling house prices vs increasing everyday living costs need to be accounted for when working out pensions etc

They know damn well that houses at some point will collapse and this will artificially skew against rising food, fuel, clothing and transport costs which will not be reflected in the rises given to pensioners etc!

This dual system of measuring needs to be set until house prices have flattened out from the biggest boom in the history of the UK.

Yes, they removed housing in Dec 2003, and didn't measure the huge increase in housing costs since, and now they are are planning to put it back, just when housing costs will start to fall. A huge chink of accumulated inflation will thus be removed forever from the government statistics. :angry: The dirty, dirty b@stards!

Edit to add full article (formatting in bold the "I told you so" part )

Housing costs must be included in inflation target, says Osborne

By Deborah Hyde | 12:13:23 | 18 May 2010

Chancellor George Osborne has backed plans to include housing costs in inflation measures, reversing the move many blame for allowing the housing bubble.

In a letter to Bank of England governor Mervyn King, Osborne said: '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.'

Back in 2003, then chancellor Gordon Brown changed the target the Bank of England used to measure inflation, stripping housing costs from the main measure.

King has repeatedly said the Monetary Policy Committee was unable to use interest rates to slow soaring house prices because it was charged with targeting CPI at 2% and anything else was outside the bank's remit.

Back in April, Osborne hinted a Conservative government would reverse Brown's move.

'There is a considerable debate about whether the current CPI inflation target covers the full cost of living, and whether it should be broadened to include housing costs,' Osborne said then.

Today's inflation data shows what a difference the two measures make as consumer prices rose 3.7% in the year to April and RPIX rose by 5.4%, up from 4.8 per cent in March.

Osborne said today that the Treasury-compiled comparison of Independent Forecasts shows the average CPI inflation forecast is 2.1% in the last three months of this year and 1.7% in the final three months of 2011.

That is in-line with the Bank of England's view that inflation will be below the 2% target later this year and throughout 2011.

http://www.citywire.co.uk/adviser/-/news/other/content.aspx?ID=400432

Edited May 24, 2010 by Tired of Waiting

[Ruffneck]

Yes, they removed housing in Dec 2003, and didn't measure the huge increase in housing costs since, and now they are are planning to put it back, just when housing costs will start to fall. A huge chink of accumulated inflation will thus be removed forever from the government statistics. :angry: The dirty, dirty b@stards!

labour removed it , the conservatives are putting it back in

'they' are not the same

sure it should never have been taken out of the inflation calculation but blame labour for that not the tories

[Tired of Waiting]

Stagflation.

Well, if they go back to RPI, they will hide some inflation, and interest rates will be a bit too low, and that may keep the economy out of recession. Bad for our hoped for house price crash though. Prices will still fall, but less, and more slowly than with CPI.

[Tired of Waiting]

If I were feeling cynical, I might suspect that Osborne wants housing to be included in inflation figures because it will drag the overall figures down. In other words, while all other assets go to the roof in price, a HPC will drag the figures in the opposite direction.

Funny how housing was not included in overall inflation figures when we had HPI.

Cynic away my friend.