Blame use of CPI for low interest rates
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I read that we switched from using RPI to CPI in 2003, and that RPI considers mortgage /rent payments wheras CPI doesn't. RPI therefore might not necessarily decrease when interest rates are raised, so when RPI was historically high (and interest rates started from a previous high base) we would've had to raise rates much higher to bite the part of inflation that wasn't caused by housing
As well as that, RPI, always being higher, would've prompted higher rates anyway
RPI was wild, so rates were too
So now we're using CPI, so we don't need high rates, and it'll respond more to interest rate rises, so I think rates will stay low
Not only that, but rate rises would be stymied right now by mortgage debt and to keep gilt yields down
As well as that, RPI, always being higher, would've prompted higher rates anyway
RPI was wild, so rates were too
So now we're using CPI, so we don't need high rates, and it'll respond more to interest rate rises, so I think rates will stay low
Not only that, but rate rises would be stymied right now by mortgage debt and to keep gilt yields down
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BOE publishes a quarterly report. Last one in May. Worth a read.
https://www.bankofengland.co.uk/-/media/boe/files/inflation-report/2018/may/inflation-report-may-2018.pdf?la=en&hash=50C30B6F32DE7CB3232EA2F0A025D849EEC1EBAA0 -
MatthewAinsworth wrote: »I read that we switched from using RPI to CPI in 2003, and that RPI considers mortgage /rent payments wheras CPI doesn't. RPI therefore might not necessarily decrease when interest rates are raised, so when RPI was historically high (and interest rates started from a previous high base) we would've had to raise rates much higher to bite the part of inflation that wasn't caused by housing
As well as that, RPI, always being higher, would've prompted higher rates anyway
RPI was wild, so rates were too
So now we're using CPI, so we don't need high rates, and it'll respond more to interest rate rises, so I think rates will stay low
Not only that, but rate rises would be stymied right now by mortgage debt and to keep gilt yields down
The preferred measure of consumer inflation is CPIH which does include owner-occupier housing costs.
RPI is far more relevant for gilt yields, because a good chunk of the book is index linked to RPI. Despite the fact that RPI has always been a rubbish measure of inflation.0 -
Thanks both, although I'm this report I can't find mention on cpih, although what I read cpih became in acceptable 2017, so before 2003 rpi ruled, causing higher rates? Then CPI ruled up till recently and now cpih might change things but it's too early to know, but I imagine it'll generally be somewhere between0
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Essentially the switch to CPI could explain the root of the differences between baby boomers and millenials (ie interest rates)0
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If your theory was correct, rates would have fallen after 2003, but actually they increased:MatthewAinsworth wrote: »Thanks both, although I'm this report I can't find mention on cpih, although what I read cpih became in acceptable 2017, so before 2003 rpi ruled, causing higher rates? Then CPI ruled up till recently and now cpih might change things but it's too early to know, but I imagine it'll generally be somewhere between
https://www.bankofengland.co.uk/boeapps/iadb/Repo.asp
It wasn't until 2008/9 that they plummeted to current levels. I wonder if anything happened around that time that could explain it?0 -
Your argument is utter nonsense.MatthewAinsworth wrote: »Essentially the switch to CPI could explain the root of the differences between baby boomers and millenials (ie interest rates)0 -
How come, economic?0
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MatthewAinsworth wrote: »Essentially the switch to CPI could explain the root of the differences between baby boomers and millenials (ie interest rates)
You could list hundreds or thousands of economic changes that have taken place between those generations. Each having a pull or
push on the economic situation of the UK.
The change of RPI/CPI is not one that would be high up on that list.
Some things are the fault of the baby boomers.
Some things are the fault of the millennials.
Some things are the fault of hundreds of years of activity catching up with the later generations.
Some things are totally out of the control of anyone in the UK.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
MatthewAinsworth wrote: »Essentially the switch to CPI could explain the root of the differences between baby boomers and millenials (ie interest rates)
If was really that simple I think you'd find that every financial journalist would have covered the story many many many times by now.0 -
Zanderman - they've said many times how rates were high then and low now, that's something the public understands and it's why house prices have risen - but the public don't understand rpi/cpI, however suddenly using a different calibration to measure it will lead to different behaviour
Masonic - rates can need to rise for cpi for non housing reasons but it lacks the same force that RPI would've had (as mortgage costs would rise with rates)
Comparing cpi to cpih will be interesting0
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