I also feel that the problems lies in our approach for having increased assets pricing and it is indeed hooks up. The relative price ration for assets and goods is also significant. It needs to be settled down….targeting asset pricing is going to be an issue!

– j.

but the main thing is what people see. Only a minority understand the economic theory.

“And in any case, (the relative price of) everything else … seems to be falling … so the only safe investment seems to be in houses. If we don’t get into the housing market now, our savings will keep on depreciating, and we never will be able to afford to buy a house.””

other person says:
“and Britain’s overcrowded, Harcourts have an office in Shanghai and places like Australia and the US are magnets for migrants.. and there’s cities in China bigger than London that no one has ever heard of… (and the businessmen in NZ have a freehand on the migration spigot) so prices will keep going up.”

Yet another
“yeah John Banks says that Auckland will get a population increase equal to Wellington in the next 14 years!”.

Just noted your 16.13 comment. I guess we are in complete agreement!

The CPI is a load of old cobblers.

Hardly surprising when the RBNZ responds to one and not the other?

The CPI is clearly inadequate in this type of environment. In fact one could argue the construction of the CPI, as opposed to a Cost of Living Index, can lead policymakers to make flawed assumptions about the level of general inflation in the economy.

A Cost Of Living Index which actually measured real household expenditure (mortgage/rent, energy, food and so on) would be more helpful.

It’s worth looking at the data over the last 20 years on House Prices, M3 growth and the CPI.

I have the data somewhere but from memory M3 + House prices are highly correlated at double digit rates whereas the CPI has averaged something like 2.5% pa.

Parallel universes? Let’s face it the last 20 years of deregulated debt has given us a debt economy……nothing more, nothing less.

Just to be clear, I’m not a fan of targeting asset prices (with the emphasis on ‘targeting’) – they’re a relative price, and the central bank has no business trying to manipulate relative prices. But I think they do need to take asset prices into consideration, because the CPI, while convenient, is an incomplete measure of inflation. That way, we won’t have to put up with central banks telling is that double-digit money supply growth isn’t inflationary, just because it’s not showing up in goods prices.