So why doesn’t official inflation include house prices?

Yesterday, we were told that inflation remains at 0.3% – making it the 26th consecutive month that inflation has been under the Bank of England 2% target.

The announcement was by the ONS, which also pronounced on house price inflation yesterday – of 7.9% in the year to January.

Quite a difference!

But could things change?

Currently, the Consumer Prices Index (CPI) is used to measure inflation.

However, another measure is called CPIH, which also takes into account costs incurred by home owners.

While CPI shows inflation at 0.3% over the last year, CPIH puts it a little higher at 0.4% between December 2014 and December 2015, and at 0.5% in December itself.

CPIH estimates how much it would cost owners if they were privately renting their homes instead.

Critics say this it is too hypothetical, and point out that if actual costs of home ownership and house price movements were included in CPIH, it would show inflation as far higher.

CPIH currently also shows some other housing-related costs, such as water and energy bills.

However, it was the “rental equivalence” method that caused problems because of the huge variations in what all the house price indices say.

As a result CPIH was downgraded last year. But it remains a work in progress for the ONS and is currently described as “experimental”.

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One Comment

  1. Will

    Because it does not give the figure the politicians want to hear in their smoke and mirrors world!

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