We can combine the main areas where housing has been stricken from the CPI – the removal of mortgage costs, quality adjustments to rent, and reduction in weight to home ownership costs – to see what difference it would make had the pre-1998 methodology been continued. The resulting MacroStats cost-of-living index is plotted below against the headline CPI.
….We can again see how this measure tracks the official CPI very closely until 1998. Since 1998 it is 0.73 percentage points higher on average (or 3.8%), and in the period 2001-2008, it averaged 1.3 percentage points higher (or 4.4%pa). That gives you some idea of how significant the 1998 methodological shift in the CPI was in disguising housing inflation and creating a feedback loop with lower monetary policy.
via How the CPI hid the housing bubble – On Line Opinion – 20/10/2011.
We need to be wary of bodies like the RBA lobbying to change the composition of the CPI. Performance measurement has to be independent in order to be effective.
Im sorry but even these figures are nothing like whats really happened to the cost of living for poorer people. I work near Woodridge in Brisbane and housing and rents doubled here somewhere in the early and mid 2000’s. This can be up to half of a persons cost of living so these increases are massive whether your borrowing or renting. Add to the that the other staples of electricity (17percent) water (wayyyyy over 20 percent) Fuel (15 percent at least) and food which has skyrocketed. Rice and grains have risen. Meat like lamb and beef have doubled in the last 5 years. A side of lamb was $2 in 2002. My butcher cant buy if for less than $8 a kg now. Thats before he adds on his profit to sell to me. On top of this Rates and Regos have soared at percentages way above all the above figures. Lies lies and more lies lurck in ABS statictics for inflation. Be aware the purchasing power of your dollar is being eroded over time at amazing rates. WHat happens to an old age pensioner when their pension rises at 5 percent and rents have just doubled? People who follow governement stats choose to hoodwink themselves. Then if these lying stats astound you check out the real figures for unemployment (google hidden unemployment in Australia). Rising gold and silver prices doesnt mean they are worth more -all it means is your money is worth so much less. Cars and tenchnology seem to be the only exceptions. Love your work Colin. Thanks for your updates.
I agree it does not show the full picture. Debt growth in Australia probably gives the most unbiased picture — after you subtract GDP growth. Private debt growth peaked in Australia at 17% in 2008. Subtract say 3% for GDP growth leaves you with 14% inflation.
Imagine what the intrest rates would be at if true inflation was reported. The bankers & government game of monopoly woul dbe over!