Coalition eyes inflation changes
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The coalition has revealed it is to explore the possibility of adding housing costs into inflation calculations.
The Government says: “We will work with the Bank of England to investigate how the process of including housing costs in the Consumer Price Index measure of inflation can be accelerated.”
Currently the CPI is a measure of a basket of goods and services without housing costs, which are part of the Retail Price Index. The RPI, which is currently at a near 20-year high of 5.3 per cent, is a tool used in the assessment of wages and pension payments.
Barclays Capital UK analyst Simon Hayes says to include housing costs into inflation calculations may mean the Bank of England would increase the inflation target to 2.5 per cent in line with RPI’s initial target.
He says: “The absence of owner-occupied housing costs in the CPI has been widely viewed as a shortcoming for some years, but the Eurostat process for rectifying it has dragged on interminably. It is not clear if the UK going it alone with its own housing-inclusive CPI measure, something that the Office of National Statistics is probably well positioned to do.”
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