Tuesday, July 24, 2007

The Fudge Of All Fudges

BOE BOSS WANTS HOUSE PRICES IN INFLATION!!

Our good Merv wants NOW to put house prices in inflation. With 10 years of boom as they were not included now he wants to put them in and in an age of inflation give the UK negative CPI???? How can anyone trust this corrupt and inept country. I really feel that anyone with a brian should be planning for the exit door.

Posted by waitingfor hpc @ 08:20 AM (536 views)
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13 thoughts on “The Fudge Of All Fudges

  • Obviously they’ll want housing included in inflation if we are about to enter a period of house price deflation.

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  • Bereasonable says:

    Mr King was referring to mortgage costs rather than house prices….linked but different.

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  • Yes I agree, there is a Brian in my office and I’m taking it no more.
    Bye bye.

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  • I think you misunderstand the argument – this is a good thing for those of us waiting for a housing market correction. If the BoE includes the increasing cost of mortgages on top of the core CPI then it shows the true state of inflationary problems we face in the UK:

    “Currently the CPI stands at 2.4%, but the RPI – which includes mortgage repayments – stands at 4.4%.”

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  • Cheakie Charlie says:

    The RPI including mortgage payments worked perfectly well but Gord viewed down the telescope with his glass eye.

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  • “Bereasonable said…
    Mr King was referring to mortgage costs rather than house prices….linked but different.

    Tuesday, July 24, 2007 08:51AM”

    Does this mean servicing costs i.e. mortgage interest? Then the CPI might actually go up. Am I right? If so this is great!

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  • Bereasonable, raising interest rates to tackle inflation would then…increase mortgage costs thus increasing inflation and requiring higher interest rates.

    Not sure whether that would work unless they were trying to plan for massive interest rates.

    Ooooh, there’s an idea

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  • holding out says:

    If you were cynical – You might think could be talking about including mortgage costs when they think they have hit the top of the IR cycle. So that when they reduce IRs it will help to reduce inflation.

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  • CPI is an EU-wide measure. There’s always been talk of including housing costs, but agreement could never be reached on it.

    The fact that he would have preferred to have housing costs included is not an indication of an imminent change in policy, and very probably not an indication of a change of heart on his part, either.

    -roy

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  • “Never attribute to malice that which can be adequately explained by stupidity.” – Hanlon’s Razor.

    IMHO, they got central banking wrong when they moved to CPI. This was a mistake, albeit a costly one, rather than a malicious act with a sinister motive. CPI seemed to work perfectly well for the rest of Europe. What they didn’t realise was the role of cultural memory in the economy – i.e. we in Britain like to own our houses, we believe that property is a good store of value and we are accustomed to paying much higher interest rates than those currently prevailing. Result – property boom! I think that it is a good thing that Mervyn King now recognises this and wants to do something about it.

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  • planning4acrash says:

    Mortgage costs will continue to rise even for some time even if there is a house price crash, because higher interest rates will be required and it will take time to squeeze mortgage inflation from the system. Only defaults and a reduction in interest rates once other inflation is subdued will send this measure south.

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  • @royston

    Hanlon is a charlatan if he tried to pass that one off as his own. That quote goes back a little further than 1980.

    http://www.quotedb.com/quotes/2308

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  • The reason CPI works better in Europe is that rates of home ownership in Germany (the biggest economic driver in the EU) are far lower. The CPI does include the cost of rent, and 50% of homes are rented in Germany (versus 30% in the UK, of which 2/3 are social housing). I wouldn’t argue that CPI is a good measure of inflation, but it is better in Germany than in the UK.

    And let’s not forget that Mervyn King did not choose to target CPI — that’s entirely due to our current Prime Minister (who probably wouldn’t be in his current position if the housing bubble over the past 5 years hadn’t boosted the economy).

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