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U.K. Adds Housing as It Continues Overhaul of Inflation Measures

  • Statistics office says CPIH to be key price measure from March
  • Move brings closer potential switch of BOE target to new gauge

The U.K.’s chief statistician said a measure of inflation including housing will become the favored gauge of consumer prices from March.

CPIH -- the consumer prices index including owner-occupiers’ housing costs -- will be the “preferred measure” of inflation for the Office for National Statistics. Switching to the new index will address several flaws and limitations in alternative price measures and simplify the current plethora of different gauges, John Pullinger said in a statement on Thursday.

“At the moment we have an alphabet of inflation measures so it’s important there’s more clarity about what we think inflation is doing,” he said in a telephone interview. “By including housing costs, CPIH is a better measure of inflation that people face up and down the country.”

The move raises the prospect of the government potentially changing the Bank of England’s inflation target to the new index. The BOE uses the current preferred measure of CPI to set monetary policy, targeting an inflation rate of 2 percent. Switching to CPIH would probably see the central bank have to incorporate the housing market much more into its deliberations and forecasts than it does presently when determining the correct level of interest rates.

While record low borrowing costs have pushed mortgage rates to record lows in recent years, house values have risen faster than consumer prices on a shortage of property for sale. The latest data put CPI inflation at 1 percent in September, while annual price growth based on CPIH was 1.2 percent.

National Statistic

The Treasury didn’t say it would ask the BOE to change the measure it focuses on. “This is an ongoing process for the ONS that still has a long way to run -- CPIH is not currently designated as a national statistic,” a Treasury spokesman said by e-mail.

The ONS is working to improve the quality of CPIH after the measure was stripped of its “national statistic” status in 2014 over concerns about the quality of some of its data sources. The index includes costs associated with owning a home such as mortgage payments, dwelling insurance, estate agents’ fees and maintenance and renovation costs.

The BOE said last year that owned-housing costs represented an important element of household expenditure and once issues surrounding the quality of the new gauge had been resolved and it had a proven track record, “there is a strong case for its becoming the main measure of inflation.” A spokesman for the central bank declined to comment any further on Thursday.

The ONS also said on Thursday that it will cease publication of a retail price index called RPIJ from March. It started publishing RPIJ three years ago to replace the old RPI index, which some inflation-linked bonds and train fares still reference.

— With assistance by John Ainger, and Lucy Meakin

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