Is it time to focus on other than the CPI

With the cost and affordability of basic housing going through the roof. More and more economic pundits are starting to question if the governments adoption or skew of components in the CPI is realistically reflecting what is happening on the ground.

In countries as far apart as the UK and Australia the CPI measurement is affected more by the increase in the price of Bananas than the costs of local income taxes and housing.

As we discussed previously the CPI figures released on a monthly basis seem to have strayed further from reality as time goes by. In fact, for the growing global middle class (estimated at 60 percent in the OECD) these numbers are out of kilter by a factor of 2.5 to 3 times.

Why all the worry about CPI?

Well, as the disparity grows, the economic indicators that are used to govern policy and rate setting fall out of kilter as well. As the expectations and lifestyles of individuals in the OECD change, then so must the way in which the new factors are measured. In the UK and Australia, governments have encouraged high levels of borrowing to sustain lifestyles.

Investments in housing rather than true wealth creating assets are in danger of creating a large and vulnerable sector of the population.

If the CPI better reflected the populous at large then the Central Banks would be better able to react to the growth factors and quell any inflationary spurts prior to them getting out of hand.

If middle class inflation rates in the UK are currently at 10 percent not the 2.5 percent that the CPI indicates then the Bank of England would have reacted some time ago. At the same time the UK would not have been held to hostage by hyperinflated house prices.