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Oh Dear . . . 2.8% . . .


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Care to give some examples?

Education is one category, off the top of my head. Higher weighting and higher relative costs.

The weighting for clothing and footwear fell around 200-2002, and the price of these goods was falling at the time. The amount of weighting given to gas bills in its inflation calculations rose between 2003 and 2006, whilst prices were rising.

Edited by Casual Observer
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Thanks CO. No one can argue that you work hard for HPC.co.uk - albeit for the defense! ;)

My reason for posting:

Anyone following this topic may find this 2006 article interesting.

Though Williams doesn't get much into hedonics, he does talk about the inflation-understating impact of geometric weighting versus arithmetic weighting in the CPI statistics: "Geometric weighting ... has the 'benefit' that if something goes up in price, it automatically gets a lower weight, and if it goes down in price, it automatically gets a higher weight."
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Why don't you gazunder your buyer if you believe you can make another 30k?

Come to that, why are you STRing at all if you believe London property will continue to appreciate?

If the market continues to rise, as you appear to believe it will, wouldn't you be better off if you use rental income for your travelling, then return to an even bigger pile of lubberly equity?

Because I'm not daft . . . or greedy. Foxton's may very well be able to find someone to offer a lot more, but the surveyor doing the valuation for their buyer's mortgage lender is unlikely to share the agent's opinion on my gaff's value. Cash buyer, no valuation probs . . .

Even if I did think London property was going to continue to soar, I think the window for selling my type of property at the "top" of the cycle is far narrower than that for period conversions. I'm STRing because I don't want to be a slave to a debt anymore, not because I'm planning to profit from someone else's negative equity misery by bowling back in if the market collapses. I'm spouse and sprog-free so I can pretty much do what I like and, in this day and age, that's a helluva luxury . . .

Edited by tenroom
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Thanks CO. No one can argue that you work hard for HPC.co.uk - albeit for the defense! ;)

My reason for posting:

Anyone following this topic may find this 2006 article interesting.

This argument about geometric versus arithmetic weightings has long interested me. I suppose there's a certain logic that if the weighting goes up because of increased consumption of that item (that's how weightings are determined) it probably does reflect the fact that the item is cheaper (that's why everyone's buying more of 'em).

I can live with the argument that the mechanism used to determine weightings is debateable by economists and statisticians, that mathematically there are 2 or more schools of thought. What I find foolish is the notion that the government sits down and fiddles it to produce the result it needs. Frankly that's just schoolboyish conspiracy theory.

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Guest grumpy-old-man
Thanks CO. No one can argue that you work hard for HPC.co.uk - albeit for the defense! ;)

My reason for posting:

Anyone following this topic may find this 2006 article interesting.

that's a very interesting document Disillushioned. :)

I like this bit:

"He goes on to point out that folks really aren't doing that well, which is why their incomes aren't growing, which is why they've borrowed money. And that's why understanding the housing ATM is so important -- because as that sputters to a halt, folks will be stuck in the same place they were before (which precipitated the borrowing, i.e., not enough income growth). Only now, they're going to be stuck with incremental debt of their own creation"

anyway, back to cpi, rpi & such like. there is an interesting bit under "That ticking sound? Social Security" :o

Edited by grumpy-old-man
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Changes to weightings often have an uplifting effect on CPI and RPI.

I probably won't be able to dissuade you from this conspiracy theory, but ask yourself this: if it was all such a fiddle, why don't they just fiddle it to 2% every month? And why has it not been exposed by anyone e.g. opposition parties, economists, disgruntled ONS staff?

It's legitimate to challenge what's in the basket, imo, but do you honestly believe that they change the weightings to fiddle the outcome? And still miss the target? :rolleyes:

On your first point, please cite an example to back up your claim. Though I have no doubt that this has happened at some point with certain products, I'd like you to prove your point all the same - then at least we know you're not just randomly making it up.

I have many more examples of adjustments which lower CPI: A question to all of the renters on here - Has your rent gone up by such an amount that it now represents a larger percentage of your total yearly outgoings compared with last year? If your answer is yes then I stand disproved. If it has not, well, then you have justified my posts.

If it was a fiddle, you are spot-on right, it would be 2% every month and it would have been highlighted by the people you suggest above. However, as I described earlier - this is not a fiddle, it is 'creative accounting' and thus more complex. Small but purposeful maniplulations in weighting do not raise massive suspicions (though the MPC have raised some doubts on the data they are getting), but have the desired effect of lowering CPI at a very fragile time for the government. Without the changes that have been made CPI would have exceeded 3.0% again this month, and reduce probability of it reaching target.

You still haven't explained why a change to heating has been made upwards when all the data would suggest it should stay the same?

Do your comments also mean that you, without any doubt whatsoever, believe every bit of data that the government feeds you - or do you agree that the government must, and does, spin situations/data to suit its cause?

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Guest grumpy-old-man
This argument about geometric versus arithmetic weightings has long interested me. I suppose there's a certain logic that if the weighting goes up because of increased consumption of that item (that's how weightings are determined) it probably does reflect the fact that the item is cheaper (that's why everyone's buying more of 'em).

I can live with the argument that the mechanism used to determine weightings is debateable by economists and statisticians, that mathematically there are 2 or more schools of thought. What I find foolish is the notion that the government sits down and fiddles it to produce the result it needs. Frankly that's just schoolboyish conspiracy theory.

so what are your thoughts on Eddie George's admission that the BoE deliberately fuelled hpi by lowering IR's to save going into recession ? :ph34r:

sorry to go a but off topic a bit, but I think this is important as it relates to our current discussion.

Edited by grumpy-old-man
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This argument about geometric versus arithmetic weightings has long interested me. I suppose there's a certain logic that if the weighting goes up because of increased consumption of that item (that's how weightings are determined) it probably does reflect the fact that the item is cheaper (that's why everyone's buying more of 'em).

I can live with the argument that the mechanism used to determine weightings is debateable by economists and statisticians, that mathematically there are 2 or more schools of thought. What I find foolish is the notion that the government sits down and fiddles it to produce the result it needs. Frankly that's just schoolboyish conspiracy theory.

my feelings are that, whilst not necessarily proactive fiddling, if there are two ways of working out the numbers (for simplicity's sake) then the people with the power will push things, subtley, to reflect what THEY want. Not technically fiddling in a big way.

An example, in terms of human nature, ambition, and subtley altering the books, is a friend of mine works in accounts for a chain of car dealerships, said that the big bosses routinely 'suggest' that some costs be re-expressed in different columns. This makes certain critical cost-bases that the managers are judged on look better than they really would be with strictly correct accounting, and of course the true costs will only come to light later down the line hopefully AFTER these managers have their promotions, when someone else has to deal with disproprtionate costs in another part of the business. The same principle would naturally apply to politicians with an over-arching portflio including the BoE etc. If imbalances result from certain creative govt statistics that cause day-to-day policy to be mis-applied, then providing the problems are put off until later, then it's not such a big deal for the politician who is merely progressing their own short-to-medium term career ambitions.

To put it ANOTHER way - the figures may not necessarily be right, but sufficient justification must exist to make them look responsible.

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This argument about geometric versus arithmetic weightings has long interested me. I suppose there's a certain logic that if the weighting goes up because of increased consumption of that item (that's how weightings are determined) it probably does reflect the fact that the item is cheaper (that's why everyone's buying more of 'em).

I can live with the argument that the mechanism used to determine weightings is debateable by economists and statisticians, that mathematically there are 2 or more schools of thought. What I find foolish is the notion that the government sits down and fiddles it to produce the result it needs. Frankly that's just schoolboyish conspiracy theory.

I'm sure Dr David Kelly would agree with you. Ah... no actually he can't because he's dead. :unsure:

I thought I'd throw this in whilst off-topic.

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so what are your thoughts on Eddie George's admission that the BoE deliberately fuelled hpi by lowering IR's to save going into recession ? :ph34r:

sorry to go a but off topic a bit, but I think this is important as it relates to our current discussion.

My thoughts are that the idea of any central bank using IRs to affect the national economy are not at all surprising. One of their central remits is to control inflation, but it's not done without regard to economic stability. If there is ever a depression in the economy i.e. several months of severe economic contraction, or a war, or another serious terrorist attack, you can expect them to do the same thing again. They'd be pretty daft to put the blinkers on whilst the economy collapsed.

But you're not claiming that they fiddled the CPI figure to do so, are you?

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Guest grumpy-old-man
I'm sure Dr David Kelly would agree with you. Ah... no actually he can't because he's dead. :unsure:

I thought I'd throw this in whilst off-topic.

ahh, no davros, don't give CO a way out of explaining the Eddie George fiasco, iirc he never commented on this last time. ;)

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my feelings are that, whilst not necessarily proactive fiddling, if there are two ways of working out the numbers (for simplicity's sake) then the people with the power will push things, subtley, to reflect what THEY want. Not technically fiddling in a big way.

An example, in terms of human nature, ambition, and subtley altering the books, is a friend of mine works in accounts for a chain of car dealerships, said that the big bosses routinely 'suggest' that some costs be re-expressed in different columns. This makes certain critical cost-bases that the managers are judged on look better than they really would be with strictly correct accounting, and of course the true costs will only come to light later down the line hopefully AFTER these managers have their promotions, when someone else has to deal with disproprtionate costs in another part of the business. The same principle would naturally apply to politicians with an over-arching portflio including the BoE etc. If imbalances result from certain creative govt statistics that cause day-to-day policy to be mis-applied, then providing the problems are put off until later, then it's not such a big deal for the politician who is merely progressing their own short-to-medium term career ambitions.

To put it ANOTHER way - the figures may not necessarily be right, but sufficient justification must exist to make them look responsible.

Exactly what I was trying to say.

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.

To put it ANOTHER way - the figures may not necessarily be right, but sufficient justification must exist to make them look responsible.

To be fair, the methodology they use is pretty transparent and well-open to debate. The items included, the weightings used, the detail on what's dropped and what's included are all itemised to a pretty high level of detail.

I'm sure the opposition parties would have their teams of statisticians and economists working hard to discredit them, if there were any shenanigans. And apart from some fairly esoteric arguments around the fringes, there hasn't been an expose of anything untoward.

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This argument about geometric versus arithmetic weightings has long interested me.

This is looking ever more fishy to me. What do you know about the difference between arithmetic and geometric weightings? (let’s call them AW,GW) All I’ve been able to find on google so far (admittedly a brief search) suggests that GW keeps figures in a tighter range – that already stinks to high heaven.

But, I’d have thought, a weighting adjusted up or down will be up or down whether it’s AW or GW albeit of differing magnitude. If it’s long interested you, perhaps you’ll be able to throw some light on what you know of the difference.

A specific example with simple round numbers would do.

(I know the difference between arithmetic and geometric mean so no need to cover that)

(edit: messy quote)

Edited by cynic
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Guest grumpy-old-man
My thoughts are that the idea of any central bank using IRs to affect the national economy are not at all surprising. One of their central remits is to control inflation, but it's not done without regard to economic stability. If there is ever a depression in the economy i.e. several months of severe economic contraction, or a war, or another serious terrorist attack, you can expect them to do the same thing again. They'd be pretty daft to put the blinkers on whilst the economy collapsed.

But you're not claiming that they fiddled the CPI figure to do so, are you?

yes but in doing so they have put off the inevitable & made it a lot, lot worse. That's not good economics in my book, that's a "it's not going to happen on my watch" thinking isn't it ?

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ahh, no davros, don't give CO a way out of explaining the Eddie George fiasco, iirc he never commented on this last time. ;)

Eddie George fiasco? It might have been a fiasco if he'd not reacted to a world-affecting event, and just let the economy collapse :rolleyes:

Methinks you place an unwarranted amount of faith in your "Eddie George revelation" Just what on earth did you expect would change as a result of it? Why do you think the rest of the world, outside of HPC, didn't bat an eyelid?

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yes but in doing so they have put off the inevitable & made it a lot, lot worse. That's not good economics in my book, that's a "it's not going to happen on my watch" thinking isn't it ?

Only if you turn out to be right about "it" being worse. In 5 years time we could all be looking back at a soft landing, and saying what a marvellous job the world's rate setters did of avoiding an economic slump.

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To be fair, the methodology they use is pretty transparent and well-open to debate. The items included, the weightings used, the detail on what's dropped and what's included are all itemised to a pretty high level of detail.

I'm sure the opposition parties would have their teams of statisticians and economists working hard to discredit them, if there were any shenanigans. And apart from some fairly esoteric arguments around the fringes, there hasn't been an expose of anything untoward.

Maybe, maybe not. Perhaps David Cameron is preparing to use similar manipulation himself? The Tories 'creatively accounted' unemployment figures down, Labour now use the same method. Maybe they realise that Jo Public wouldn't have a clue as to what adjustment of CPI weighting actually means and ignore it. Who knows?

Besides, DC didn't seem too concerned that M4 is now out of control*, so why highlight CPI when the Tories don't even grasp the basics?

*Any argument against this is simply silly

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Maybe, maybe not. Perhaps David Cameron is preparing to use similar manipulation himself? The Tories 'creatively accounted' unemployment figures down, Labour now use the same method. Maybe they realise that Jo Public wouldn't have a clue as to what adjustment of CPI weighting actually means and ignore it. Who knows?

Besides, DC didn't seem too concerned that M4 is now out of control*, so why highlight CPI when the Tories don't even grasp the basics?

*Any argument against this is simply silly

Any argument that M4 is not high is silly. But argument about the degree to which M4 bears on price inflation is far from silly.

A study group has been set up by Brown to analyse that very linkage, as a prelude to incorporating it within its target in some way.

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This is looking ever more fishy to me. What do you know about the difference between arithmetic and geometric weightings? (let’s call them AW,GW) All I’ve been able to find on google so far (admittedly a brief search) suggests that GW keeps figures in a tighter range – that already stinks to high heaven.

But, I’d have thought, a weighting adjusted up or down will be up or down whether it’s AW or GW albeit of differing magnitude. If it’s long interested you, perhaps you’ll be able to throw some light on what you know of the difference.

A specific example with simple round numbers would do.

(I know the difference between arithmetic and geometric mean so no need to cover that)

(edit: messy quote)

Basically, CPI uses geometric mean values, RPI uses arithmetic.

The attached, particularly Table 10, demonstrates the difference:

http://www.statistics.gov.uk/pdfdir/cpi0306.pdf

Edited by Casual Observer
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Any argument that M4 is not high is silly. But argument about the degree to which M4 bears on price inflation is far from silly.

A study group has been set up by Brown to analyse that very linkage, as a prelude to incorporating it within its target in some way.

Thats not what I was saying, but I agree with you, there is evidence on both sides for this. My point was, the conservatives have not attacked this, and DC seems not to understand it potential implications.

IMHO High M4 = High inflation (supply & demand)

Many disagree. Merv is not sure - The MPC said they would look at it. Thats good enough for me.

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Guest grumpy-old-man
Eddie George fiasco? It might have been a fiasco if he'd not reacted to a world-affecting event, and just let the economy collapse :rolleyes:

Methinks you place an unwarranted amount of faith in your "Eddie George revelation" Just what on earth did you expect would change as a result of it? Why do you think the rest of the world, outside of HPC, didn't bat an eyelid?

has there ever been an economy that hasn't had a collapse at some point ?

greed, power & money will always win, so it's all pretty inevitable & predictable really, even for newcomers to the economic scene such as myself.

We just go round in circles with you stating that all will be well & a soft landing will be reached.....just like the USA are having right now eh ? :lol::lol:

Edited by grumpy-old-man
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Basically, CPI uses geometric mean values, RPI uses arithmetic.

The attached, particularly Table 10, demonstrates the difference:

http://www.statistics.gov.uk/pdfdir/cpi0306.pdf

Thanks for the link. I’m not sure that this really answers the question about weighting, and a pdf search for “weighting” in this doc comes up with no hits.

You imply you understand the difference between AW and GW with respect to CPI. Can you offer a simple illustration of the difference as you understand it?

A basket of goods with just 2 or 3 items will do.

(perhaps you're just confusing 'weighting' with 'mean' - they're not the same.)

Edited by cynic
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To be fair, the methodology they use is pretty transparent and well-open to debate. The items included, the weightings used, the detail on what's dropped and what's included are all itemised to a pretty high level of detail.

I'm sure the opposition parties would have their teams of statisticians and economists working hard to discredit them, if there were any shenanigans. And apart from some fairly esoteric arguments around the fringes, there hasn't been an expose of anything untoward.

the arguments are necessarily esoteric as economics is not the most predictive of subjects. Against such strong public sentiment the opposition parties would come out looking very bad if they were to make too much of a thing about the (albeit superficially transparent) accountings of this situation. Until, as in my opinion they will, economic fundamentals react to inappropriate fiddling round the definitions, then popular opinion will regard the current situation as Brown's inspiration to separate himself from ir-decisions, and opposition politicians must be careful regarding what they say in order to remain credible in the popular eye.

The numbers can be a transparent as you like, but the underlying, 'esoteric' arguments, either for or against, fall foul of broad popular sentiment, which is, alas, generally less well informed.

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