CPI Archives - Page 6 of 6 - the patient investor %

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.

MacroStats Cost-of-living index

….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.

The recent seasonal adjustments to the CPI and the reduction in the level of underlying inflation blunts the force of the RBA’s recent argument about inflationary pressures. But, absent an offshore catalysing event, that alone won’t make them cut rates.

Rather I think that household retrenchment and saving will lower economic activity in the economy and that the RBA has overplayed the extent that the mining boom induced income will wash through the Australian economy.

Increasingly, we are getting confirmation of this theory. Unfortunately, we are seeing Australians lose jobs at an increasing rate. Data released yesterday by Westpac on consumer unemployment expectations suggests this is going to get worse.

via Rate cuts are coming – macrobusiness.com.au

Tag: CPI

Australia: How the CPI hid the housing bubble – On Line Opinion

Rate cuts are coming – macrobusiness.com.au