Inflation to worsen ...

[TimberWolf]

http://news.bbc.co.uk/1/hi/business/7400074.stm

So there we are. If the BofE is to try to keep a lid on inflation, interest rates will have to RISE in a recession. Clearly a recipe for changing recession into depression
So which will it be: Depression or huge inflation?

What if house prices were incorporated in the official inflation index calculation? If this should become too negative, he could always add in some inflationary items to compensate, such as council taxes and food?

[DiscoStu]

Like a stopped clock, he is right some of the time

Yes, ignoring seconds, one time in 720.

[BrilloPad]

What if house prices were incorporated in the official inflation index calculation? If this should become too negative, he could always add in some inflationary items to compensate, such as council taxes and food?

I have often thought that. It might have worked if done in 1997. I would hate to add in house price inflation from current high levels - but with a snake like El Gordo who can tell...

[rootsnall]

I have often thought that. It might have worked if done in 1997. I would hate to add in house price inflation from current high levels - but with a snake like El Gordo who can tell...

We did use the RPI ( including mortgage payments and hence reflects house price inflation ) and the target was 2.5%. They switched to CPI ( no mortgage payments and other things excluded ) and a target of 2%. With the old RPI measure interest rates would have been consistently higher over te past few years. And yes the obvious El Gordo trick will now be to switch back to the RPI measure as it starts falling ( or not looking as bad as the CPI figure ).

[BrilloPad]

We did use the RPI ( including mortgage payments and hence reflects house price inflation ) and the target was 2.5%. They switched to CPI ( no mortgage payments and other things excluded ) and a target of 2%. With the old RPI measure interest rates would have been consistently higher over te past few years. And yes the obvious El Gordo trick will now be to switch back to the RPI measure as it starts falling ( or not looking as bad as the CPI figure ).

mortgage payments and house price inflation are seperate - we could debate the link. but one thing - debt is reeality - price is vanity. if people invest in houses instead of stock market - prices will rise. until people buy who need a mortgage. this is getting complicated - my head hurts - where is atw with the right answer?

mortgage payments partly reflect interest rate (BP in state the obvious mode) so if you raise interest rates to target inflation by raising interest rates, RPI inflation goes up. Hence circular.

So I would like a BPPI - CPI plus house prices. Better still - CPI plus 3* average earnings(which is where house prices should be?).

I need a lie down now.....

[rootsnall]

mortgage payments and house price inflation are seperate - we could debate the link. but one thing - debt is reeality - price is vanity. if people invest in houses instead of stock market - prices will rise. until people buy who need a mortgage. this is getting complicated - my head hurts - where is atw with the right answer?

mortgage payments partly reflect interest rate (BP in state the obvious mode) so if you raise interest rates to target inflation by raising interest rates, RPI inflation goes up. Hence circular.

So I would like a BPPI - CPI plus house prices. Better still - CPI plus 3* average earnings(which is where house prices should be?).

I need a lie down now.....

I don't think you are the right man to write Economics for Dummies.

If they had used RPI with a target of 2.5% it would of meant higher interest rates and lower house prices.