Lardy wrote:
Hello.
Hello! Welcome!
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The thing about interest rates is that while they are an extremely blunt instrument, they are pretty much the only tool available to control inflation.
Very true - and this a point continually made by the more intelligent economic commentators. It was starkly apparent when the US Federal Reserve dropped their interest rates to -1000% or whatever it was last year.
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Craster, you also seem to be confusing 'the cost of living' with 'the price of things in pounds and pence' although the distinction is made deliberately ambiguous whenever they raise interest rates.
The two things are largely interchangeable though. Granted, if you don't buy anything and grow your own food, your personal inflation level and cost of living is next to zero. But I'd understood that the CPI/RPI metrics were to measure the price of various goods and services which the average person will need to spend money on in order to provide some measure of the "cost of living". Otherwise what would be the point in measuring the changes in the prices of things? They may as well just pick incredibly esoteric items like leather bullwhips if it's not to do with the "cost of living" and if they're just picking stuff at random.
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unless you want to go back to the gold standard.
This would require buying all our gold back of course, after our Supreme Leader made the excellent decision of flogging it all off at the bottom of the gold market.
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As for the CPI, I'd argue it makes sense to exclude mortgage payments, for the same reason you think they should be included - they are the product the bank changes the price of to influence the price of all the other products. If they include the thing they are changing directly then the sensitivity of the test to the thing they are actually trying to alter indirectly is reduced. You can always track the RPI, which does include mortgage rates, if you prefer.
Hmm, very good point. Still, as the "cost of living" is, arguably, what the whole inflation thing is about, and mortgages are a big component, there's an argument for them being in there. It all depends on what you want this "inflation" metric to tell you. I'm not 100% sure what the government thinks it's for, mind.
However, a thought has occurred. How many people in the UK actually have mortgages? I would imagine that the effect on inflation of interest rate rises would be proportionate to this, and would change with the number of houseowners. If we all suddenly started renting, the Bank would have no lever to effect inflation. Score!
Mind you, as inflation is largely driven by energy prices and food shortages at the moment I'm not sure how the Bank can do anything about it anyway.
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Personnally I'd like to see different inflation rates published for people at different income brackets, and make controlling the low income one the taget rate. If you're poor and spend all your money on food, inflation is sky high. If you're rich and spend most of your money on consumer electronics, it's much lower.
I like this idea but I should imagine that this would be nigh on impossible.
I'd mention that my eldest sister who, like her long term partner, has never worked, owns lots of very expensive electronic kit. Goodness knows how they afford it, but they do. They seem inflation-proof. So even were it technically possible to calculate and publish inflation rates for different social groupings, I'm not sure one can categorise the populace sufficiently easily or meaningfully enough in order to do do this.