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Cpi Versus Rpi

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Finally after years of drivel Anatole Kaletski has finall said something that almost makes sense http://www.timesonline.co.uk/article/0,,1061-1812724,00.html

He states that if only Brown had kept to the RPI that the bank would have been able to decrease base rates as the RPI inflation figure (including house prices) is much lower than the CPI (not including houses). In fact it's a much bigger issue than this because if we had of been on RPI in the first place the couple of years of 20% HPI we've just had would have rapidly caused an increase in BOE rates and have gone someway to stopping the inflation of the house price bubble.

Looks like choosing the CPI was doubly wrong.

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Correct. We have been using a unrealistically low inflation measure so the MPC targetting has been too low/lax and the money supply has increased more than it should have done. Its called inflation.

It has allowed G Brown to keep the economy afloat - paid for by the money the general population has borrowed to fund houses over the last 7 years. Will joe bloggs ever realise that he has paid for this "stability" with his pension, future earnings, etc.

Edited by Tempest

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Finally after years of drivel Anatole Kaletski has finall said something that almost makes sense http://www.timesonline.co.uk/article/0,,1061-1812724,00.html

He states that if only Brown had kept to the RPI that the bank would have been able to decrease base rates as the RPI inflation figure (including house prices) is much lower than the CPI (not including houses). In fact it's a much bigger issue than this because if we had of been on RPI in the first place the couple of years of 20% HPI we've just had would have rapidly caused an increase in BOE rates and have gone someway to stopping the inflation of the house price bubble.

Looks like choosing the CPI was doubly wrong.

Wouldn't have been as bad as interest rates would have been higher...

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Wouldn't have been as bad as interest rates would have been higher...

Exactly.

As for creating the bubble on purpose; maybe he thought he would be in number 10 by now!

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Finally after years of drivel Anatole Kaletski has finall said something that almost makes sense http://www.timesonline.co.uk/article/0,,1061-1812724,00.html

He states that if only Brown had kept to the RPI that the bank would have been able to decrease base rates as the RPI inflation figure (including house prices) is much lower than the CPI (not including houses). In fact it's a much bigger issue than this because if we had of been on RPI in the first place the couple of years of 20% HPI we've just had would have rapidly caused an increase in BOE rates and have gone someway to stopping the inflation of the house price bubble.

Looks like choosing the CPI was doubly wrong.

I agree totally. I can see his idea, European harmonisation and all that, but yes i agree it would have helped prevent the market getting so high, although now if it had been used the Bank of England would be cutting interest rates merrily, which would keep the market buoyant, but the average house price level would be lower. I am not sure why they don't have a housing component to the CPI, as at least this would give a better representation.

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  • 301 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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