From Citywire:
Chancellor George Osborne has backed plans to include housing costs in inflation measures, reversing the move many blame for allowing the housing bubble. In a letter to Bank of England governor Mervyn King, Osborne said: 'Over the longer term I would welcome your views on how we might accelerate the process of including housing costs in the CPI inflation target.'
Back in 2003, then chancellor Gordon Brown changed the target the Bank of England used to measure inflation, stripping housing costs from the main measure. King has repeatedly said the Monetary Policy Committee was unable to use interest rates to slow soaring house prices because it was charged with targeting CPI at 2% and anything else was outside the bank's remit....
Of course, an incoming management is perfectly entitled to restate the opening balance sheet to put as much blame on the previous management as possible - and in terms of Labour's scorched earth spending, I don't think that the Lib-Cons have even started to scratch the surface - and it is inevitable that a government will prefer to focus on whichever measures of inflation or unemployment happen to be more flattering at the time.
The Lib-Cons clearly expect house prices to be flat or falling for the foreseeable, and most people expect imported inflation and higher prices because of the National Insurance and VAT hikes, so, being charitable about this, he's just recommending this because he expects RPI to be lower than CPI, and hence will make his 'economic stewardship' look good. Fair enoughski.
Being less charitable about this, he's just continuing the Home-Owner-Ist policies originally pioneered by the Tories but honed to perfection by Labour - if house prices are rising, you exclude them from the inflation measure; that makes inflation seem lower and so interest rates can be lower; which stokes house price inflation even more.
Conversely, if there is general price inflation, as a rule of thumb this means that interest rates ought to go up; so if you include flat or falling house prices, the headline inflation rate is lower, which enables the Bank of England to keep interest rates lower than they otherwise would be, thus tending to prop up house prices, which is the central aim of the British political/economic system.
Triple layer tinfoil
2 hours ago
11 comments:
Or Osborne might genuinely have identified a major problem with the inflation-reporting regime and be seeking to correct it.
BE, in principle, I'd agree with you, but for the average Home-Owner-Ist voter, house price rises are A Good Thing.
John Redwood is moaning about being branded an anti-Government rebel in the Standard for breaking ranks over CGT.What has the Standard said about him? ( Out in the sticks)
> house price rises are A Good Thing.
Don't look at todays Express
http://www.dailyexpress.co.uk/posts/view/175765
DBC, the ES reported him as saying what you would expect him to say, yadda yadda, only he denies saying that - see over at his 'blog (see if he publishes my comment).
AC1, thanks, I won't
DBC, the ES article is here.
Which blog item are you responding to; the correction to The Standard?
To be fair Redwood is generally the perfect gentleman in his conduct of his blog: I stuck up a very rude response to Tax Cuts and Robin Hood item and he left it there.
However he must be pretty naive to boast in a widely-read blog of a conspiracy to attack Coalition policy partly in defence of the Homeownerist hegemony and then complain when a paper quotes his own words in the blog back at him .
Lets not be too "sensible" about this: it looks like the HomeOwnerist fight-back against what they perceive to be a threat .
DBC, I'm getting confused now. Did the ES base their article on something he came up with on his 'blog?
Anyway, Home-Owner-Ist fightback it is, but as far as CGT rates are concerned, the Lib-Cons have merely put the clock back to years to where the rate had been for decades.
I don't think Osborne was being deliberately home-owner-ist. I think he just hasn't thought it all through.
At the moment, both RPI and RPIX are a fair bit higher than CPI. So a change in target would probably mean higher interest rates. He might be calculating that more pain now means less later. Or he just might think it's a good idea to include housing costs in the target measure of inflation. Which it is imho.
"thus tending to prop up house prices, which is the central aim of the British political/economic system."
Yup! Totally. The Big Three manifesto
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