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Guardian - Official Inflation Statistics Hide True Increase In Cost Of Living

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http://www.guardian.co.uk/business/2011/feb/15/official-statistics-hide-severity-uk-inflation

"
Official statistics hide true increase in cost of living
Britain switched to the consumer prices index (CPI) to measure inflation in 2003, (...) The CPI does not include housing (...)
The article said the public could have "little faith" in an inflation measure that omitted housing costs, which were of "primary concern" to households."

.

Edited by Tired of Waiting

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First they deny we're being misled:

The journal article said there was no "ethical" issue involved in the UK, "in the sense that the statisticians or politicians are deliberately misleading the British public about inflation".

But just a couple of lines on:

The paper said governments had always had a vested interest in defusing public disquiet over rising inflation by "showing slower price increases".

It added: "Nowadays, this is accomplished simply by changing the 'formula' rather than more obviously fixing the numbers themselves, defining what the 'preferred' official measure is and by trying to conceal the full extent of domestic price escalation.".

Well, which is it? If they're adjusting the formula "to conceal the full extent of domestic price escalation" then they are deliberately misleading the public.

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First they deny we're being misled:

But just a couple of lines on:

Well, which is it? If they're adjusting the formula "to conceal the full extent of domestic price escalation" then they are deliberately misleading the public.

I dunno - I think by saying there is no ethical issue they are opening admitting that cooking the books and lying to the public is not regarded as unethical :)

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(...)

The article said the public could have "little faith" in an inflation measure that omitted housing costs, which were of "primary concern" to households."

They want to get housing costs back into the index, because they are set to fall, which can be used to hide fuel and food inflation.

They are deliberatly losing the last war.

This is the same scam as finally linking pensions to wages, just as wage inflation falls below RPI.

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First they deny we're being misled:

But just a couple of lines on:

Well, which is it? If they're adjusting the formula "to conceal the full extent of domestic price escalation" then they are deliberately misleading the public.

Mervyn King, told a House of Lords Economics Committee that he opposed the then Chancellor Gordon Brown’s change of inflation indexes in December of 2003, from RPI to CPI, thus removing housing costs from it.

We know now that that change kept interest rates too low for too long, fuelling the bubble in credit/debt, and assets, including houses.

Link to that Lords Committee's report:

http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeconaf/101/9032403.htm

See questions 481 to 487

Q481 Chairman: Would you also want to look at the CPI as a measure of inflation, given that it does not include the effect of house prices?

Mr King: When we switched from RPIX to CPIX I expressed some reservations about the move on the grounds that, although CPI has many advantages over RPIX, it has one very big disadvantage which is that RPIX includes house prices and CPI does not. I expressed some concern about the move at that point. I would like to see us have a price index which does include house prices; I have made no bones about that but we are where we are and it does not make sense to chop and change the target too often.

Q482 Baroness Kingsmill: It would appear that the use of interest rates is not for controlling inflation alone; it is not an adequate basis for the Bank’s ongoing role. I would highlight the fact that the inflation target seems to have resulted in too low interest rates which have created excessive mortgage debt and a house price bubble. Furthermore, (…)

-------------------

(((Note: Then Baroness Kingsmill adds two other topics in her question, Mervyn King replies only to the second part of Baroness’ question, and ignores the part about “too low interest rates which have created excessive mortgage debt and a house price bubble.” But thankfully Lord Forsyth returns to interest rates, and gets Brown’s role out. See below.)))

-------------------

Q486 Lord Forsyth of Drumlean: I just wanted to pick up on the question which the Chairman raised to which you gave a very complicated answer in terms of international aspects of it. The evidence we have had, and certainly the report points to it, is that you were setting interest rates looking at a very narrow measure of inflation whilst house prices were going through the roof and other asset classes were going through the roof. I understand the point that if you put up interest rates you might not have met your narrow definition of inflation target and it might have meant that there were fewer building workers employed building flats which turned out subsequently to be almost worthless. But is there not merit in the argument which says that part of the problem has been holding interest rates down too low, so people went out and borrowed and bid up the price of assets like houses? Now, as a result, we are having to pay the price with very high unemployment which is going to go over three million. Did we not actually try to play the game of golf with one tool to the very considerable disadvantage of people in this country, which had nothing whatever to do with international factors but was entirely a result of the way we chose to handle our monetary policy?

Mr King: No. I certainly accept that we did go into this with only one instrument for the Bank of England, which was the bank rate, and that in itself was not sufficient to guarantee stability. I totally accept that; the point I made to the Chairman. However, we do work and live in an international capital market. Rightly or wrongly we have abolished capital controls and the level of long-term interest rates in our economy is determined in the world capital market and what happened with a very large expansion of the volume of savings in Asia was that world real interest rates were bid down to very low levels. Those are the interest rates which determine asset prices and that is why all asset prices went up, not just here but in other countries too. That is something which no one country had much control over and that is why we do need some action at the international level.

Q487 Lord Forsyth of Drumlean: But if you had had housing in the measure of the increase in inflation and you had set interest rates to take account of the increase in house prices, then people would have been less able to borrow to the extent that they have and there would have been less pressure on house prices.

Mr King: Certainly in the last two or three years, before the crisis began in 2007, it is fair to say that the change of the target probably made it more difficult for us to achieve that balance. After all, our job is to follow the remit given to us by Parliament. It is not our job to say we do not care if Parliament have made a mistake, we will do something else. There is a system which gives us a very clear remit and our job is to follow that. I have said before that I think it would have been preferable had we stayed with an index in which house prices were still included. I have said that several times before.

Edited by Tired of Waiting

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I dunno - I think by saying there is no ethical issue they are opening admitting that cooking the books and lying to the public is not regarded as unethical :)

Lying to the population by the political elite is enshrined in rule of law, the Labour party were in court recently, and a judge ruled that any manifesto “promises” are not subject to legal expectation. Lets not forget that when the farce of elections take place again :P

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http://www.guardian.co.uk/business/2011/feb/15/official-statistics-hide-severity-uk-inflation

"
Official statistics hide true increase in cost of living
Britain switched to the consumer prices index (CPI) to measure inflation in 2003, (...) The CPI does not include housing (...)
The article said the public could have "little faith" in an inflation measure that omitted housing costs, which were of "primary concern" to households."

.

This was one of the greatest crimes ever committed here in the UK - by a certain Moron Brown. He should serve 35 years in prison for this alone.

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They want to get housing costs back into the index, because they are set to fall, which can be used to hide fuel and food inflation.

Yep. They will hide a chunk of inflation forever.

If they kept CPI from now onwards they would ignore the bubble on both ways (up and down), and one thing would compensate the other. But if they don't account for it only on the way up, and DO account for it on the way down, then they will hide forever one chunk of inflation. (If I have managed to explain myself here.)

They are deliberately losing the last war.

I think it is deliberate, to reduce the long term UK debt on inflation indexed Gilts, and to reduce Gilts costs in general - as if the market doesn't notice these things... :rolleyes: Or... is the gov. right on this? Perhaps "institutional investors" - our stupid pension funds (those who were banks shareholders...) could fall for this one too?! :(

Jeeez...

This is the same scam as finally linking pensions to wages, just as wage inflation falls below RPI.

Actually I think the LibDems won this one, and pensions will increase with the highest of these 3: CPI or RPI or earnings.

On a side note: You may find the Lord report I posted above v. interesting. :)

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This was one of the greatest crimes ever committed here in the UK - by a certain Moron Brown. He should serve 35 years in prison for this alone.

+ 1

And the role played by Ed Balls in this case should also be investigated, as there are many rumours that Balls was the real Chancellor.

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Mr King: ... After all, our job is to follow the remit given to us by Parliament. It is not our job to say we do not care if Parliament have made a mistake, we will do something else. There is a system which gives us a very clear remit and our job is to follow that.

Hmmm! He seems to have decided that he was wrong here now, eh?

Peter.

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Mr King: No. I certainly accept that we did go into this with only one instrument for the Bank of England, which was the bank rate, and that in itself was not sufficient to guarantee stability. I totally accept that; the point I made to the Chairman. However, we do work and live in an international capital market. Rightly or wrongly we have abolished capital controls and the level of long-term interest rates in our economy is determined in the world capital market and what happened with a very large expansion of the volume of savings in Asia was that world real interest rates were bid down to very low levels. Those are the interest rates which determine asset prices and that is why all asset prices went up, not just here but in other countries too. That is something which no one country had much control over and that is why we do need some action at the international level.

If rate setting policy has no effect because it was all to do with Asian savings then maybe we should sack this vacuous piece of shit and ask for the money back for all the years he hs been receiving it on false pretences.

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Baroness Kingsmill: I would highlight the fact that the inflation target seems to have resulted in too low interest rates which have created excessive mortgage debt and a house price bubble.

Somebody spoke the truth .... in politics! :o. Heretic :angry:

Edited by Home_To_Roost

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Mervyn King, told a House of Lords Economics Committee that he opposed the then Chancellor Gordon Brown’s change of inflation indexes in December of 2003, from RPI to CPI, thus removing housing costs from it.

We know now that that change kept interest rates too low for too long, fuelling the bubble in credit/debt, and assets, including houses.

And that change presumably made the bubble worse, although exactly how much of a difference isn't clear (well, not to me). Would the bubble have only been 90% of the size otherwise, or would it have been only 50%?

Also, it's looking a lot like Merv is pretty desperate to get blame shifted away from him. IIRC he didn't really do much to point out the fact that the biggest bubble in history was inflated on his watch. Eg:

Q486 - Asian savers/ world interest rates. Nothing to do with me.

Q487 - I was only following orders.

btw I'm not suggesting Gordon Brown was competent or sane, but he's not the only culprit.

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Actually I think the LibDems won this one, and pensions will increase with the highest of these 3: CPI or RPI or earnings.

Thanks, I missed that.

On a side note: You may find the Lord report I posted above v. interesting. :)

Thanks again, I'll give it a read...

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Hmmm! He seems to have decided that he was wrong here now, eh?

Peter.

Yep. King tries twice shift the blame to somebody else: To parliament; and to the greater availability of credit in international markets - as if the borrowers didn't have a choice.

Fortunately there is a very neat chart measuring countries level of "prudence", or self-restrain, or maturity, wisdom, good-governance, etc.

Here: http://www.housepricecrash.co.uk/forum/index.php?showtopic=159357&view=findpost&p=2892117

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Thanks, I missed that.

Thanks again, I'll give it a read...

You're welcome.

(Edit: Actually the correct answer is here below. Link: http://www.housepricecrash.co.uk/forum/index.php?showtopic=159513&view=findpost&p=2894667 )

And I meant just the quote from the report I posted above, coz the actual report is huge! and painfully boring! - well, it was for me, most of the time. Just a warning (disclaimer :D )

Edited by Tired of Waiting

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Mr King: No. I certainly accept that we did go into this with only one instrument for the Bank of England, which was the bank rate, and that in itself was not sufficient to guarantee stability. I totally accept that; the point I made to the Chairman. However, we do work and live in an international capital market. Rightly or wrongly we have abolished capital controls and the level of long-term interest rates in our economy is determined in the world capital market and what happened with a very large expansion of the volume of savings in Asia was that world real interest rates were bid down to very low levels. Those are the interest rates which determine asset prices and that is why all asset prices went up, not just here but in other countries too. That is something which no one country had much control over and that is why we do need some action at the international level.

If rate setting policy has no effect because it was all to do with Asian savings then maybe we should sack this vacuous piece of shit and ask for the money back for all the years he hs been receiving it on false pretences.

Nah... Lame excuse. Please see my post #19, above.

LINK: http://www.housepricecrash.co.uk/forum/index.php?showtopic=159513&view=findpost&p=2894616

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If they kept CPI from now onwards they would ignore the bubble on both ways (up and down), and one thing would compensate the other. But if they don't account for it only on the way up, and DO account for it on the way down, then they will hide forever one chunk of inflation. (If I have managed to explain myself here.)

Yes, but given that they are hardly even pretending to target inflation, it may be a moot point.

If you totally ignore a measure which includes house prices, is it any different to totally ignoring a measure which doesn't?

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Actually I think the LibDems won this one, and pensions will increase with the highest of these 3: CPI or RPI or earnings.

After 2011 it's the highest of CPI, wage inflation or 2.5%

The government's preferred measure of inflation is CPI, which will be used to set state pensions from 2012 onwards. Annual increases in average earnings will also be taken into account, as the Minister for Pensions, Steve Webb explained: 'We've taken a decision to restore the link with earnings and increase the basic State Pension by the highest of prices, earnings or 2.5%. This triple guarantee will ensure that pensioners can expect a decent offering from the state in retirement'

http://www.which.co.uk/news/2010/12/state-pension-increase-confirmed-for-2011-239486/

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Yes, but given that they are hardly even pretending to target inflation, it may be a moot point.

If you totally ignore a measure which includes house prices, is it any different to totally ignoring a measure which doesn't?

:lol:

Good point.

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  • 311 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% +
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      • Even
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      • up 5%



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