Treasury may change inflation target to include housing costs

Top Bank of England policymaker Andy Haldane says inflation measure that includes housing costs would be “conceptually and practically more useful"

Andy Haldane, the Bank’s incoming chief economist, told MPs on Wednesday that Bank staff had held technical discussions with the Treasury to assess whether it would be appropriate to switch the Bank's 2pc target from the consumer prices index (CPI) to the new CPIH measure, which was introduced in March 2013. CPIH includes housing costs such as mortgage interest payments, which represent about 10pc of consumer spending. 

Meanwhile, Spencer Dale, another Bank policymaker, said the Bank remained vigilant about developments in the housing market. "We know we should be nervous about what is going on in the housing market. The housing market we know from experience has the ability to turn from relatively comfortable warmth in terms of supporting the economy to overheating very quickly," he said.

DYI Comments:  One can only hope this idea of moving away from rents to the cost of housing to determine inflation catches on in the U.S.  Housing is a consumption item that keeps us warm during the winter and cool in the summer for it is not an investment (unless it is a rental property). The majority of the rise in housing prices is simply inflation.  If the inflation price rise was stopped homes would become less costly due more efficient building techniques and labor saving tools.

Hopefully this will catch on with the Fed's; I'm not holding my breath.

DYI