Home > Data, Inflation > Administered Prices, Revisited

Administered Prices, Revisited

A quick note, file under “Relentless Attack on Inflation”.  Thanks to some kind soul on twitter (whose name I’ve forgotten), I discovered that Eurostat have time series which split “administered prices” out of the HICP (= UK CPI).

UK HICP and Variants

UK HICP and Variants. Source: Eurostat HICP ex Admin Prices , HICP , HICP at Constant Taxes

I have discussed the effect of “administered prices” on the CPI here before, and I don’t have much to add.  When energy prices go up because of increasing regulatory costs is that an “administered price” shock which should be ignored, or not?  There are no “right” answers, it depends on your views on the appropriate goals for macro policy.

(It would be interesting to drill down into the divergence of the HICP from the HICP ex AP between 2004 and 2008.  Tuition fees again?)

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Categories: Data, Inflation
  1. June 17, 2014 at 16:08

    Tuition fees, but also: railway fares, BT line rental, energy, water, mobile termination rates. That’s a lot of stuff!

  2. June 17, 2014 at 16:35

    And another thing, which I don’t think we’ve got on this list:
    “Analysis: Index of Private Housing Rental Prices and Consumer Price Index actual rentals
    Some users of the IPHRP have asked how this series differs from the Consumer Prices Index (CPI) actual rentals for housing. The main difference between these two series is that in addition to private rented housing, CPI actual rentals for housing includes social housing (housing associations and local authorities) and holiday lets. CPI actual rentals for housing had a higher rate of increase in the period from January 2006 to March 2013 than IPHRP, in part due to target rents in social housing often being linked to inflation. Figure A shows three separate series: the IPHRP, the actual rentals for housing from CPI and the private rental component of the actual rentals for housing. CPI actual rentals for housing is higher for the entire period, while the magnitude of the CPI private rentals subcomponent and the IPHRP are comparable.”
    http://www.ons.gov.uk/ons/dcp171778_360816.pdf
    At least the ONS is onto this one. The chart Figure A, p.12 shows a huge gap in 2006 between market rents and total rental growth. A chasm of misunderstanding? Or maybe a dog chasing its tail?

    • June 17, 2014 at 17:21

      Assuming rents aren’t in the administered prices category, this suggest they should be. A sort of “second derivative” of administered prices inflation. It is insane.

      • June 17, 2014 at 22:52

        Yes I saw that graph before, via Hopi Sen here: http://hopisen.com/2014/second-generation-rent-controls-solving-a-problem-that-doesnt-exist/

        But I never read the text. I am actually shocked, and I thought there was nothing about the UK housing market which could shock me any more. Let me get this straight.

        1. We regulate the housing market to prevent supply expanding along with demand, because we like green fields.

        2. We notice that a lot of people can’t afford houses any more, because demand went up without supply, so we (taxpayers) pay for:

        a) The government to build new low quality “affordable” houses because there are not enough houses to meet demand.

        b) Subsidised rent for people who cannot find or afford housing in low quality housing.

        3. We contractually link those rental payment to the CPI… or the RPI? This is to encourage a supply of low quality rental housing I presume?

        4. Then our politicians notice that “the rent is too damn high” and propose… some kind of rent controls.

        Did I get that right?

  3. June 22, 2014 at 08:54

    Yes. I thought I’d got the chart from you, but was I was puzzled by the three lines, so read that startling explanation.

    Off topic, this link from a comment on Wren-Lewis’ blog is interesting on the prodcutivity mystery. Lorenzo from Oz once listed several concepts from macro that were the opposite of common usage of the term. I fear the same from “productivity” after struggling to get my head around this.
    http://effectivedemand.typepad.com/ed/2014/06/defining-effective-demand-as-keynes-saw-it.html

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