Inflation rose to 5% in March

Some historical figures

I think the article is very unbalanced , they should balance it up a bit by telling us how much the price of property is down in the last year.

This inflation measure never took account of property prices. It takes into account the level of mortgage repayment. If interest rates go up and property prices remain the same (all other factors also remaining the same) then inflation will go up. As house prices fall the mortgages and hence mortgage repayments will fall which will reduce inflation.


I was under the impression that inflation considers the interest of a fixed amount of capital, but doesn’t account for the need to borrow more/less capital for a given house.

True - but what do you think of the ‘forward punting’ of the resulting inflation?

For the super-simplified example of house prices doubling in one year, with prices flat before / after, you don’t get a massive jump in inflation for one year, you get a slight increase in inflation for 20 years.

Surely any future inflation which is known about today is really today’s inflation?

Inflation Index to increase as a result of Negative Equity!

A house isn’t a wasting asset, even if the price is going down.

Come on geckko, you are the expert! I tried to lure you into responding a couple of times over the past year on this topic. A London policeman once said to me as a young green Irish Paddy when I asked him, where to go for a leak in Tralfalgar Square, I quietly stuttered as what to call the place, Jacks, Johns, loo, toilet "speak up there, and don’t be bashful"!

There’s not a lot to say from my point of view.

Measures of general price levels are important for economic management purposes. How can you target inflation (which is the rate of increase in the general price level) without a good measure.

However, in practice it is impossible to get an ideal solution. CLearly housing costs need to be included in some way. Rents are (by comparison) easily measured compared with costs of ownership which naturally include a substantial finance element.

Nothing used that I have seen is ideal and has its flaws. There seems to be an approach followed in most countries that is better than some alternatives (though I confess I haven’t trawled over the Irish technical details).


I have been reading back some of the comments and there remains some misunderstanding by posters here.

A couple of things to note:
The CPI is a measure of general price levels (or changes as the CSO put it), and NOT the cost of living.

To understand what that means consider this. If house prices halved tomorrow the cost of living would go down, but the general price level would not. By that I mean that at the margin the cost of financing a house would go down substantially (the cost of living), but the general price level of financing a house would not (i.e. there is a large stock of people locked into paying a higher price.)

I don’t know why people are getting their knickers all twisted over this.

I saved a CB report on my computer called Consumer Price Index (CPI).
House Prices and the Consumer Price Index. Explanatory Note. May 2003

See the last underline. Jesus! Talk about VI quotes :laughing:

I think you’ve latched on to this whole “appreciated asset” thing far to much, and are completely ignoring the long term nature of the purchase. The stockmarket isn’t included in the CPI either.

Anyway, there’s no way house prices are going to be included. I’ll donate €100 to your favourite charity if they are.

They already are (indirectly, via the interest costs on a pool of mortgages), and my favourite charity is me :slight_smile:

True - but it’s hard to avoid the idea that the current system encourages economic cycles. If the inflation measures quickly reacted to rising house prices, it would act as a better sign of an economy running beyond its potential, and thus call for earlier counter-cyclical action (the fact that house price rises themselves act as a cyclical mechanism reenforces this need).

The current CPI approach averages house prices over such a long period that it provides almost no information, since the 20 year averaging is considerably longer than the economic cycle, and thus the housing contribution to CPI is near constant.

THe people who use the data tend to look through such things. That is why in the UK all focus is/was on the RPI ex MIPs (ex mortgage interest payments) because of that very reason.

What about a seperate measure of house price inflation as a sign of an economy running beyond its potential…

…or how about we as a nation cop the hell on and see rapidly rising costs as rapidly rising costs rather than rapidly rising wealth!

Can you imagine the VI economists though, telling us on one hand that inflation is bad while on the other, isn’t it great about rising house prices!

Which is why i’d like the idea of getting house prices included (usefully) within a main inflation number.