NEW chancellor George Osborne yesterday called on the Bank of England to accelerate plans to reintroduce house prices into the benchmark rate of inflation, after the housing-linked index in April recorded its biggest monthly increase in two decades.
The consumer price index (CPI) – the official inflation measure which does not currently take housing into account – spiked to 3.7 per cent in April, a 17-month high. But the retail price index (RPI), which does include house prices, recorded an even more extraordinary jump last month, up from 4.4 per cent to 5.3 per cent, its steepest increase since 1991.
Gordon Brown has been slammed for his decision in 2003, as chancellor, to remove housing costs from the official CPI measure. The move meant the Bank’s hands were tied when it came to wielding interest rates to control soaring house prices before the crisis.
Osborne intimated before the election that a Tory government would address the issue to ensure the CPI covers the “full cost of living”.
Bank governor Mervyn King was forced yesterday to write to Osborne to explain why inflation has moved outside a one per cent buffer zone around the Bank’s two per cent target. King blamed higher oil prices, the resumption of the normal 17.5 per cent VAT rate in January and the continuing effect of the depreciation of sterling in 2007-8 for the spike.
The CPI was also buoyed by the rising price of food and women’s clothing and taxes on alcohol and tobacco.