Peter Hoskin

Osborne’s inflationary problem

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Alexander Larman

What happened to the Rishi Sunak I knew at school?

One thing to note about the letter Osborne wrote today, though, is its insistence that housing costs should be included in the CPI target:

“I welcome this opportunity in our exchange of letters to state clearly the Government’s absolute commitment to maintaining price stability, and as Chancellor I will support the MPC’s decisions and actions to meet the 2 percent inflation target as measured by the 12-month increase in the Consumer Prices Index (CPI). As we discussed, over the longer term I would welcome your views on how we might accelerate the process of including housing costs in the CPI inflation target.”

Gordon Brown’s fixation with CPI targetting was perhaps the main reason why no-one noticed the swelling debt bubble.  There he was boasting about low and stable inflation while, all the time, the housing market went into overdrive – a sign of all the easy credit sloshing around the system.  So while Osborne’s approach doesn’t completely remove the worry that something similar might happen again, the inclusion of housing costs would certainly be a step in the right direction.

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