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House Prices Factored Into Inflation Calculations

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December, 2003

Dropping RPIX in favour of HICP could make it harder for the Bank of England

to correctly gauge what effect the notoriously volatile UK housing market is having on the economy.

The Chancellor, Gordon Brown, has made it pretty plain that the UK will only join if certain economic conditions are met.

The Treasury delivered its verdict on these last June, when it said that joining the euro would probably boost trade in the long term, but at the cost of greater economic volatility.

http://news.bbc.co.uk/1/hi/business/3188470.stm

The decision to switch to HICP inflation has however been undermined by news that the EU intends to add house prices to the measure by 2006, currently the key difference between the two measures. Eurostat, the EU’s statistical agency, has said it is already integrating house prices into HICP in pilot schemes in the UK, Germany, Spain, Finland and Poland. If successful the tests will be spread to all EU members next March, with a view to changing the index by 2006.

http://www.no-euro.com/factsfigures/briefs...omic_reform.asp

Question for the economy boffins: Will this affect house prices?

Edited by burnt before

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Question for the economy boffins: Will this affect house prices?

It's beeen predicted on here a few times I think that when prices of houses start falling then they will be included in the CPI - infact when the price of anything starts falling it will be put in the Cpi

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Question for the economy boffins: Will this affect house prices?

This is no suprise. Take things out of the inflation index when they are rising and add them when they are falling.

Hey presto. No inflation.

If you buy into this sort of economics you may as well get 'mug' tattooed on your forehead.

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Question for the economy boffins: Will this affect house prices?

Depends on whether the BoE sets the target at 2 or 20%.

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It's beeen predicted on here a few times I think that when prices of houses start falling then they will be included in the CPI - infact when the price of anything starts falling it will be put in the Cpi

Okay... so I take it then, that it’s the movement not the value! is that right?

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Common sense says that if you constantly change how inflation is calculated, you are never comparing like with like and hence the numbers become meaningless.

The EU are being pretty smart on this though. They must have looked at the HPI in the UK and all the problems that have resulted - not least the ridiculous debt levels, and are going to make sure that this problem is not repeated in Germany and France.

By incorporating HPI into inflation, they will be able to raise interest rates to nip HPI in bud as the German economy recovers.

It's too late for Ireland and Spain. ECB rate rises are going to really hurt them, but the EU will just see that as collateral damage. Ho-hum.

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it means, as dvd players arent going to get any chaper the chinese effect has run its course, falling houseprices will keep inflation low instead.... as the cost of food, bills, oil continue to rise....

Edited by moosetea

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it means, as dvd players arent going to get any chaper the chinese effect has run its course, falling houseprices will keep inflation low instead.... as the cost of food, bills, oil continue to rise....

Does this indicate the Government will want house prices to fall/correct?

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Does this indicate the Government will want house prices to fall/correct?

it means falls in houseprices wont be as noticeable, because they wont appear to fall as much against £ value. It will mean we all get poorer if inflation above this version of inflation...

If the old inflation is at 5/6% and this inflation is at 2%, the question is what is wage inflation? and how long can everything be out of step before everyone wakes up... IMO people have already started to wake up and realise they are getting poorer...

Edited by moosetea

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So the general consensus is little or no change?

That depends upon how it is weighted. It could be that a modest fall in house prices , causes a substantial drop in inflation, which in turn allows the BOE to reduce rates, which will help support the housing market.

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That depends upon how it is weighted. It could be that a modest fall in house prices , causes a substantial drop in inflation, which in turn allows the BOE to reduce rates, which will help support the housing market.

...which will in turn raise inflation and trigger rate rises.

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it means, as dvd players arent going to get any chaper the chinese effect has run its course, falling houseprices will keep inflation low instead.... as the cost of food, bills, oil continue to rise....

In my local Sainsburys last week the £19-99 DVD players were reduced to £17-99. Masses in stock, the country must be awash with them.

Now has it got to the stage where production levels are above consumption levels of these sort of goods?

Are we at "dumping" stage?

Does this mean that the CPI figure can carry on down because of this?

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Thing with DVD players - yes they're cheap but you only buy one.

DVDs are more expensive than VHS tapes, so wouldn't this actually fuel more consumer spending?

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  • 302 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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