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Ash4781

Cpi / Rpi Diverging ?

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Isn't this the reason that CPI and not RPI is targetted when IRs are set? If mortgage repayments were included in the inflation estimate used to set IRs, it would introduce positive feedback (higher RPI > rise in interest rates > higher mortgage repayments > higher RPI).

Having said that, it's common sense to include some sort of measure of house prices or actual cost of accommodation in the inflation measures. Surely this is what King meant some months ago when he said that he wished that the BoE's remit included asset prices. Was he implying that if house price inflation had been within their remit, BoE IRs would have been higher over the past 5 years or so (and we wouldn't be in such a mess now)?

Edited by DrBob

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Isn't this the reason that CPI and not RPI is targetted when IRs are set? If mortgage repayments were included in the inflation estimate used to set IRs, it would introduce positive feedback (higher RPI > rise in interest rates > higher mortgage repayments > higher RPI).

Having said that, it's common sense to include some sort of measure of house prices or actual cost of accommodation in the inflation measures. Surely this is what King meant some months ago when he said that he wished that the BoE's remit included asset prices. Was implying that if house price inflation had been within their remit, BoE IRs would have been higher over the past 5 years or so? (and we wouldn't be in such a mess)

Maybe this is the people coming of their fixed deals and getting a jump in payments ?

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Isn't this the reason that CPI and not RPI is targetted when IRs are set? If mortgage repayments were included in the inflation estimate used to set IRs, it would introduce positive feedback (higher RPI > rise in interest rates > higher mortgage repayments > higher RPI).

Having said that, it's common sense to include some sort of measure of house prices or actual cost of accommodation in the inflation measures. Surely this is what King meant some months ago when he said that he wished that the BoE's remit included asset prices. Was he implying that if house price inflation had been within their remit, BoE IRs would have been higher over the past 5 years or so (and we wouldn't be in such a mess now)?

Yeah, that's the reason RPI is ignored for unterest rate setting as it would be fairly pointless. However, if the mortgage payments less interest portion were used, there's no reason why it couldn't be.

Guess it would be pretty complicated to calculate when most of the statistics staff are up to their necks in fiddling CPI ;)

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Isn't this the reason that CPI and not RPI is targetted when IRs are set? If mortgage repayments were included in the inflation estimate used to set IRs, it would introduce positive feedback (higher RPI > rise in interest rates > higher mortgage repayments > higher RPI).

Having said that, it's common sense to include some sort of measure of house prices or actual cost of accommodation in the inflation measures. Surely this is what King meant some months ago when he said that he wished that the BoE's remit included asset prices. Was he implying that if house price inflation had been within their remit, BoE IRs would have been higher over the past 5 years or so (and we wouldn't be in such a mess now)?

Yeah, funnily enough the mortgage payments aren't included, but mortgage exit fees are included and that was one of the reasons why CPI went down.

So let's get this clear.

Monthly mortgage payments, payments that you pay every month: excluded.

Mortgage exit fees, that you pay once every 5 years: included.

Can I smell a fishy rat?

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Yeah, that's the reason RPI is ignored for unterest rate setting as it would be fairly pointless.

But RPI was rocketing long before the interest rate hikes and seems to have come off the boil since then.

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Wonder how Merv is going to fix this problem

cpi down = downward pressure on Base Rates

Rpi up = Increased wage demands and upward pressure on Base Rates

He will be alright though - he's got his fan chart to work with !!

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uksept182007.jpg

How long can the economy cope with the divergence ?

....CPI and RPI are growing apart like Base and Libor......the former of each is the government 'masked' measure.....bandit country.....time we got rid...... :ph34r::ph34r::ph34r:

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This is truely one of natures finest quirks. Out of the several hundred items in each 'basket', somehow nature seems to have deemed that on average, those that fall into one basket have been rising in price at over twice the rate of those in the other basket. I'm sure that the odds of something like this happening are immense. It's almost like it's been planned this way.................

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This is truely one of natures finest quirks. Out of the several hundred items in each 'basket', somehow nature seems to have deemed that on average, those that fall into one basket have been rising in price at over twice the rate of those in the other basket. I'm sure that the odds of something like this happening are immense. It's almost like it's been planned this way.................

...it's called a 'Con'...confidence trick..... :ph34r::ph34r::ph34r:

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It's common sense to include some sort of measure of house prices or actual cost of accommodation in the inflation measures. Surely this is what King meant some months ago when he said that he wished that the BoE's remit included asset prices.

Only now that asset prices are falling will there be a move to stick houses in the basket of goods, it will counteract the price rise of imported crap from China, smart move and will give the bubble a boost. three cheers for Gordy and Merv, champers anyone<_<

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Only now that asset prices are falling will there be a move to stick houses in the basket of goods, it will counteract the price rise of imported crap from China, smart move and will give the bubble a boost. three cheers for Gordy and Merv, champers anyone<_<

I've thought that for a while. Wait until house prices look like they're turning then include them.

Economist on News 24 suggest it was a drop in gas prices which has been the main component causing this month's drop. No real change to underlying prices.

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I've thought that for a while. Wait until house prices look like they're turning then include them.

Economist on News 24 suggest it was a drop in gas prices which has been the main component causing this month's drop. No real change to underlying prices.

...last month the excuse was the "2 for 1" offers at the supermarkets..... :lol::lol::lol::P

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uksept182007.jpg

How long can the economy cope with the divergence ?

Nice graph. IF you have the data (and a few minutes) plug the annual cpi/rpi figures into excel for the last 10 years and apply it as annual compound interest on 40k. THATS divergence.

Rich (well less so if you get pay rises inline with cpi...!)

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http://www.statistics.gov.uk/CCI/nugget.asp?ID=19

The latest Bank forecast shows CPI going over 2% in the short term and going by previous RPI-CPI difference this would put RPI over 4%.( http://www.bankofengland.co.uk/publication...rt/ir07nov5.pdf )

Is a large part of the divergence due to the re-pricing of mortgage rates as the bank raised rates ?

If the bank cuts rates but lenders' fail to pass on the rate cuts will RPI still stay high ?

Edited by Ash4781

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Isn't this the reason that CPI and not RPI is targetted when IRs are set? If mortgage repayments were included in the inflation estimate used to set IRs, it would introduce positive feedback (higher RPI > rise in interest rates > higher mortgage repayments > higher RPI).

Having said that, it's common sense to include some sort of measure of house prices or actual cost of accommodation in the inflation measures. Surely this is what King meant some months ago when he said that he wished that the BoE's remit included asset prices. Was he implying that if house price inflation had been within their remit, BoE IRs would have been higher over the past 5 years or so (and we wouldn't be in such a mess now)?

why not just use RPIX

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