Good news for UK inflation comes with another attempt to mislead us

Yesterday saw quite a development in the UK inflation measurement saga as the Treasury Select Committee joined the fray by writing to the UK National Statistician John Pullinger.

As the Economic Affairs Committee presented in their report, the error caused the RPI to be artificially inflated by 0.3 percentage points in 2010……There was general agreement amongst the witnesses spoken to that the 0.3 percentage point increase was an error, and of course you yourself admitted this. Instead of fixing this however, you have designated RPI a “legacy measure”, making no further  improvements to the index. This is not a tenable position when the index remains in widespread use. The past RPI index-linked Gilt matures in 2068.

As I have already replied to the Financial Times on the subject there are some good parts to this but also problems.

Fair enough, except we have an immediate problem as the very bodies which have so failed us over the past 7 years such as the UK Statistics Authority are now supposed to fix a problem they are not only part of they have contributed to. When I gave evidence to it I felt it was simply going through the motions.

The National Statistician and the UK Statistics Authority have failed so comprehensively they cannot be part of the solution. Also as I have reflected on this there are two other problems. Firstly the approach above seems to want to turn the clock back to before 2010 when the RPI was affected by a change in the method of collecting prices for clothing which has turned out to especially impact fashion clothing. Whereas we need to go forwards with an improved model. Also they have come out with a 0.3% number out of thin air as I recall the evidence of Simon Briscoe who gave the most evidence in this area and he wanted further research to get a number rather than stating one, So this from the Treasury Select Committee is both unfounded and potentially misleading.

This has led to a £1 billion yearly windfall for index-linked gilt holders, at the expense of consumers, like students who have seen interest on their loans rise, or rail passengers affected by increasing fares.

You see students,consumers and rail passengers have been affected by a political choice which was to use the higher RPI for when we pay for things and the invariably lower CPI when the government pays for things. Former Chancellor George Osborne was responsible for this swerve which boosted the government;s finances via a type of stealth tax. So I can see why government MPs are keen to push this view but more surprised that opposition MPs have joined in, perhaps they were so busy looking good for the crowd they did not stop to think.

There is also another serious problem as I wrote to the FT.

Next we have the issue that official communiques seem to forget that there are problems with other inflation measures too. For example the House of Lords was very critical of a major part of the measure the UK Office for National Statistics has pushed hard.


“We are not convinced by the use of rental equivalence in CPIH to impute owner-occupier housing costs”


Can anybody spot the mention of the flawed CPIH above? Those of a fair mind looking for balance would think it deserves it. You see it is always like that……

As you can see there are familiar issues here where the establishment takes evidence but then cherry picks it to come to an answer it wanted all along! A balanced report would recommend changes to both RPI and CPIH. After all the latter is supposed to be the new main inflation measure. Also the use of 0.3% seems to be answering a question before it has been properly asked! We were supposed to go forwards and measure the impact of the changes made in 2010 so if the MPs via their own expertise have calculated the answer at 0.3% they should explain their calculations and reasoning.

I will be writing to them challenging them on these issues. They seem to be unduly influenced by the work of the economics editor of the Financial Times Chris Giles who keeps claiming that index-linked Gilt holders who he called “the gnomes of Zurich” at the Royal Statistical Society. I have challenged him on that statement as after spending many years in that market I do not recall ever dealing with one of these creatures and we know that many UK pension funds including the Bank of England one invest in it instead. Until we do the proper research we cannot know if there has been a windfall let alone the size of it. Chris is much quieter these days past about his vigorous support of CPIH and rental equivalence.

Today’s Data

This brought some welcome good news.

The all items CPI annual rate is 1.8%, down from 2.1% in December.

This has various consequences as for example it has been quite a while since the Bank of England has been below its inflation target. Although as it was partly to do with the Ofgem price cap some of it will not last as it reversed it a few days ago.

The largest downward contribution to the change in the 12-month rate came from electricity, gas and other fuels, with prices overall falling between December 2018 and January 2019 compared with price rises the same time a year ago.

Actually just as I am typing this I see this on Sky News.

Energy supplier Npower says it will raise its standard gas and electricity prices by 10% from 1 April.

If we look further upstream for price trends we see that the pressure continues to be downwards.

The headline rate of output inflation for goods leaving the factory gate was 2.1% on the year to January 2019, down from 2.4% in December 2018…..The growth rate of prices for materials and fuels used in the manufacturing process slowed to 2.9% on the year to January 2019, down from 3.2% in December 2018.

If we move to the RPI we see that it fell as well and also would have been on target in annual terms.

The all items RPI annual rate is 2.5%, down from 2.7% last month. The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is
2.5%, down from 2.7% last month.


It is a welcome development that I can point out that UK real wages are now increasing against all our inflation measures. After a credit crunch that has been something of a nuclear winter for real wage growth it is nice to see and report on, but sadly we have a long way to go to get back to where we were. Some good news in what looks like an economic downturn.

Let me translate my views on inflation measurement above to a real life example. You see if you follow the establishment mantra you tell people they are better off than they are as the Resolution Foundation has done here.


Using the CPIH inflation measure understates the fall in real wages we have seen via its use of rents that are never paid ( Imputed Rent) as a measure of owner occupied housing costs. For newer readers CPIH assumes that people who own a house pay themselves rent and even worse these “estimates” are based on rental data which is dubious and suggested by some to be 1% too low via the wrong balance between new and old rents. In a nutshell this is why I have persisted in my long campaign about inflation measurement because the establishment is happy to produce numbers which to be polite are economical with the truth. I am not.


Lower UK inflation provides some welcome good news for real wages

This morning allows us to take a deep breath and move from last night’s excitement which rapidly turned to apparent stalemate to a whole raft of UK inflation data. As we stand the UK Pound has rallied a bit to US $1.288 and 1.129 versus the Euro but in inflation terms that represents a drop as it was around 7% higher versus the US Dollar a year ago. So that is what is around the corner as today the influence will be a bit more than that as the UK Pound was weaker in December versus the Dollar which is the currency in which commodities are priced.

Moving to the price of crude oil there will be a downwards influence on today’s numbers from it as we note a March futures price which peaked at US $84.58 and was more like US $56 around the time the UK numbers are collected. If we look at the weekly fuel prices we see that petrol prices dropped from being around 12 pence per litre dearer than a year before to more like 2 pence. However this gain has been offset to some extent by the way that diesel has become much more expensive than petrol with the gap between the two being around 4 pence in December 2017 but more like 10 pence in December 2018. Does anybody have a good reason for this?

Inflation Targeting

Bank of England Governor Mark Carney answered some online questions on the 9th of this month at what is called the Future Forum. Let me open with a point of agreement.

On your question about the level of the inflation target, long and varied experience has shown that price stability is the best contribution monetary policy can make to the public good.

The problem is that whilst I mean price stability he is being somewhat disingenuous as that is not what he means. Let me highlight with this.

There are good reasons why central banks around the world, including the Bank of England, target a low, positive rate of inflation not no inflation.

As you can see he talks the talk but does not walk the walk and here is his explanation.

 A little inflation ‘greases the wheels’ of the economy, for example by helping inflation-adjusted wages adjust more smoothly to changes in companies’ demand for labour and facilitating shifts in resources between sectors in response to changes in supply and demand. Moreover, a positive inflation rate gives monetary policy space to deliver better outcomes for jobs and growth

So it helps him to look like a master of the universe and helps wages adjust. Seeing as wages have adjusted downwards I hope he was challenged on that point. But there is more.

From a more technical point of view, the official rate of inflation might also over-estimate the true rate at which prices are rising because it is hard to strip out increases that reflect improvements in the quality of goods and services on offer. Aiming for a 0% inflation target would risk forcing the economy into deflation in the medium term.

That is really rather breathtaking! Let me explain why by comparing his “might” by the reality that UK consumer inflation has since the change to CPI as the inflation target in 2003 consistently under recorded inflation via the way that owner occupied housing is ignored completely. They always meant to get around to it but somehow forget until they managed to find a way ( imputed rent) of having one of the fastest areas of inflation recorded as one of the slowest in the new “comprehensive” CPIH measure.

At least he has dropped the effort to claim that relative prices could not move with a 0% inflation target. This is because I kept pointing out that when we had around 0% around 3 years ago there was a big relative price shift via the much lower price of crude oil which had driven it. So it is good that this particular fantasy had its bubble burst but not so good that the Ivory Towers responsible carry on regardless.

Also if we return to the quality issue a powerful point was made by the statistician Simon Briscoe who stood up and stated that each time he bought a new I-Pad it cost him more than a thousand pounds. But whilst he realised each one was better how does that work if he neither needs nor uses the additions or only uses a few of them?


As we had been expecting the consumer inflation numbers provided some good news this morning.

The all items CPI annual rate is 2.1%, down from 2.3% in November……..The all items RPI annual rate is 2.7%, down from 3.2% last month.

The main driver here was transport costs as we expected because if we throw in the whole sector then annual inflation was cut by a bit more than 0.2% due to it. Actually slightly more for the RPI as it has a higher weight for air fares. Also the RPI was affected by something a little embarrassing for a Bank of England which had raised Bank Rate in November by 0.25%.

Mortgage interest payments, which decreased the RPI 12-month rate by 0.09 percentage points between November and December 2018 but are excluded from the CPIH.

Of course they are excluded from the woeful CPIH which essentially only includes things which do not exist in its calculations about owner occupied housing and ignores things which are paid. Here is its major player.

Private rental prices paid by tenants in the UK rose by 1.0% in the 12 months to December 2018, up from 0.9% in November 2018.

As you can see even at the new overall lower trend for house price growth (which was previously around 5% per annum ) it way undershoots the number.

Average house prices in the UK increased by 2.8% in the year to November 2018, up slightly from 2.7% in October 2018 (Figure 1). Over the past two years, there has been a slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

The lowest annual growth was in London, where prices fell by 0.7% over the year to November 2018, unchanged from October 2018.



There are two entwined elements of good news here as we note first the fact that the annual rate of inflation has fallen and done so quite sharply if we look at RPI. The next is that it has helped UK real wage growth into positive territory on a little more clear-cut basis. Should total pay growth continue to exceed 3% ( it was last 3.3%) then it is hardly a boom but hopefully we will see a sustained rise. At a time when the economic outlook has plenty of dark clouds this is welcome especially as the outlook seems set fair.

The headline rate of output inflation for goods leaving the factory gate was 2.5% on the year to December 2018, down from 3.0% in November 2018. The growth rate of prices for materials and fuels used in the manufacturing process slowed to 3.7% on the year to December 2018, down from 5.3% in November 2018.

Inflationary pressure in the system has slowed.

Moving to measurement I have some hopes for this from the House of Lords Economic Affairs Committee.

Next Thursday 17 January we will publish “Measuring Inflation”, our report on the use of RPI.

It did appear that something of a stitch-up was underway but efforts were made to provide an alternative view as for example I invited them to a debate at the Royal Statistical Society on the subject. They then became quite critical of the way that our official statistician have refused to update the RPI even for changes which would be simple. So fingers crossed! Although of course the establishment is a many-headed hydra.

Sticking with the RPI I referred yesterday to an article in the Financial Times about index-linked Gilts and here is the most relevant sentence.

 This implies inflation of about 3.2 per cent — well above current levels and the Bank of England’s 2 per cent target.

So it implies inflation of 3.2% which was well above the 3.2% the RPI was at the time the piece was written?!



UK Inflation looks set to fall as 2018 progresses

Today brings us face to face with the UK context on what many are telling us has been the cause of the recent troubled patch for world equity markets. This is because a whole raft of inflation data from the consumer producer and housing sector is due. The narrative that inflation has affected equities markets has got an airing in today’s Financial Times.

The inflation threat has simmered for months, but the missing link had been wage growth, which made the rise in the US jobs figures for January so important, fund managers say. Indeed, the yield on the 10-year Treasury is 40 basis points higher this year, driven almost entirely by inflation expectations. Strong global economic data, coupled with sweeping tax cuts and the recent expansionary budget deal in Washington, should stir price pressures.

Actually that argument seems to be one fitted after the events rather than before as the rise in bond yields could simply be seen as a response to the expansionary fiscal policy in the US combined with interest-rate increases and a reduction albeit small in the size of the Federal Reserve balance sheet. Actually as the FT admits inflation is often considered to be good for equities!

While faster inflation would typically be good for stocks, lifting companies’ pricing power and suggesting economic growth is accelerating.


There is also a theme doing the rounds about wage inflation. Yesterday Gertjan Vlieghe of the Bank of England joined this particular party according to Reuters.

 a pick-up in wages ……..signs of a pick-up in wages

The problem for the Bank of England on this front is two-fold. Firstly it has been like the boy ( and in some cases) girl who has cried wolf on this front and the second is that the official data has picked up no such thing so far. Thus we are left essentially with one higher wages print of 2.9% for average hourly earnings in the United States. So the case is still rather weak as we wonder if even the current economic recovery can boost wages in any meaningful sense.


The first trend which should first show in the producer price numbers is the strength of the UK Pound versus the US Dollar over the past year. It was if we look back about 14 cents lower than the current US $1.388. Also the price of crude oil has dipped back from the rally which took it up to US $70 in terms of the Brent benchmark to US $62.47 as I type this. This drop happened quite quickly after this.

Goldman Sachs has held one of the most optimistic views on the rebalancing of the oil market and oil prices in the near term, and the investment bank is now growing even more bullish, predicting that the oil market has likely balanced, and that Brent Crude will reach $82.50 a barrel within six months. (

The Vampire Squid is building up quite a track record of calling the market in the wrong direction as back in the day it called for US $200 a barrel and when prices fell for a US dollar price in the teens. I will let readers decide for themselves whether it is simply incompetent or is taking us all for “muppets”.

Today’s data

The good news was that the trends discussed above are beginning to have an impact.

The headline rate of inflation for goods leaving the factory gate (output prices) rose 2.8% on the year to January 2018, down from 3.3% in December 2017…….Prices for materials and fuels (input prices) rose 4.7% on the year to January 2018, down from 5.4% in December 2017.

Tucked away was the news that the worst seems to be passing us as this is well below the 20.2% peak of this time last year.

The annual rate of inflation for imported materials and fuels was 3.5% in January 2018 (Table 2), down 1.7 percentage points from December 2017 and the lowest it has been since June 2016.

It is a little disappointing to see the Office for National Statistics repeat a mistake made by the Bank of England concentrating on the wrong exchange rate.

The sterling effective exchange rate index (ERI) rose to 79.0 in January 2018. On the year, the ERI was up 2.6% in January 2018 and was the fourth consecutive month where the ERI has shown positive growth.

Commodities are priced in US Dollars in the main.

Consumer Inflation

This showed an example of inflation being sticky.

The all items CPI annual rate is 3.0%, unchanged from last month.

However prices did fall on the month due to the January sales season mostly.

The all items CPI is 104.4, down from 104.9 in December

The inflation rate was unaffected because they fell at the same rate last year.

There was something unusual in what kept annual inflation at 3%.

The main upward contribution came from admission prices for attractions such as zoos and gardens, with prices falling by less than they did last year.

I will put in a complaint when I pass Battersea Park Childrens Zoo later! More hopeful for hard pressed budgets was this turn in food prices.

This effect came from prices for a wide range of types of food and drink, with the largest contribution coming from a fall in meat prices.

My friend who has gone vegan may be guilty of bad timing.

An ongoing disaster

The issue of how to deal with owner-occupied housing remains a scar on the UK inflation numbers. This is the way they are treated in the preferred establishment measure.

The OOH component annual rate is 1.2%, down from 1.3% last month. ( OOH = Owner Occupied Housing).

Not much is it, so how do they get to it? Well this is the major player.

Private rental prices paid by tenants in Great Britain rose by 1.1% in the 12 months to January 2018; this is down from 1.2% in December 2017.

If you are thinking that owner occupiers do not pay rent as they own it you are right. Sadly our official statisticians prefer a fantasy world that could be in an episode of The Outer Limits. They have had a lot of trouble measuring rents which means their fantasies diverge even more from ordinary reality.

If they had used something real then the numbers would look very different.

UK house prices rose 5.2% in the year to December 2017, up from 5.0% in November 2017.

This makes inflation look much lower than it really is and is the true purpose in my opinion. A powerful response to this at one of the public meetings pointed out that due to the popularity of leasing using rents for the car sector would be realistic ( they do not) but using it for owner-occupied housing is unrealistic ( they do).

If you want a lower inflation reading thought it does the trick.

The all items CPIH annual rate is 2.7%, unchanged from last month.


The underlying theme is that UK consumer inflation looks set to trend lower as 2018 progresses which is good news for both consumers and workers. The initial driving force of this was the rally of the UK Pound £ against the US Dollar and as it has faded back a little we have seen lower oil prices. We also get a sign that prices can fall combined with annual inflation.

The all items CPI is 104.4, down from 104.9 in December…..The all items RPI is 276.0, down from 278.1 in December…….The all items CPIH is 104.5, down from 105.0 in December.

One issue that continues to dog the numbers is the treatment of housing and for all the criticisms levelled at it a strength of the RPI is that it does have house prices ( via depreciation).

The all items RPI annual rate is 4.0%, down from 4.1% last month.

Meanwhile the Bank of England seems lost in its own land of confusion. It cut interest-rates into an inflation rise and then raised them into an expected fall! This is of course the wrong way round for a supposed inflation targeter. Now they seem to be trying to ramp up the rhetoric for more increases forgetting that they need to look 18 months ahead rather than in front of their nose. Perhaps they should take some time out and listen to Bananarama.

I thought I was smart but I soon found out
I didn’t know what life was all about
But then I learnt I must confess
That life is like a game of chess



UK Inflation rises again but more hopefully the UK pound follows it

I was not expecting to publish an article today but my knee operation planned for today was cancelled with an hour’s notice. Let me wish the trauma patients who came into Chelsea and Westminster Hospital overnight well. Returning to the economics there is a link between today’s subject of inflation and that of yesterday because inflation will be over target and of course the Bank of England choose to ease policy into an inflation rise.

The impact of higher prices on the poor

One of the issues faced by the poor is that they pay a different set of prices to the rest of us. The Joseph Rowntree Federation has looked at this and intriguingly opens with something which could have been written by me.

Reducing the cost of essential goods and services is as important as increasing incomes for reducing poverty in the UK.  The less people must spend on meeting their needs, the more cash in their pocket.

The Bank of England will be annoyed on two counts. Firstly it aims for inflation of 2% per annum and secondly the idea that what it calls non core items are important.

The JRF moves onto the problem.

New research by Bristol University has laid bare the scale of the poverty premium for the first time.  They estimate that on average the poverty premium is costing low-income households £490 per year.

We get some more details.

Some premiums seem inconsequential, such as paying an extra £5 per year for a paper copy of an electric bill because you’re not online, or find it easier to keep on top of your budget with a paper copy. Others are eye watering, such as paying £540 over the odds for a doorstep loan because you can’t access mainstream credit or an additional £120 for a payday loan.

There are various factors at play here but we know that those that are poorer tend to pay more for many products. These comes from an inability to shop around both physically and online as well as being unable to use direct debits. Some of these represent a type of exploitation but it is also true that sometimes the problems create higher costs for businesses which need to be passed on.

There have been calls at times for different inflation measures to represent different groups. What we do know is that the establishment’s choice the Consumer Price Index performs badly in this regard. This is because it is weighted and based on total spending where of course the better off are more highly represented and so this means that rather than representing the median person it tends to represent those more like two-thirds of the way up the income scale. The much maligned Retail Price Index excludes the top 4% in terms of income so performs better in this regard although it does exclude some pensioner households.

The UK establishment’s view on measuring inflation

We can see this from simply looking at the progression of UK inflation targets. First the original one.

The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 4.1%, up from 3.9% last month.

As we note an annual inflation measure that has passed 4% we move onto the current measure.

The all items CPI annual rate is 2.9%, up from 2.6% in July.

The clear trend is downwards and let us now look at the UK statistical establishment’s favourite measure.

The all items CPIH annual rate is 2.7%, up from 2.6% in July.

Of course the reality of price rises and inflation does not change but at the current rate the inflation reality of now will perhaps be accompanied by an official inflation measure at 0% in a few decades.

A major factor

Treatment of the housing market and particularly owner-occupied housing costs is at the heart of the matter. If we look at house prices we are told this by the Office for National Statistics.

Average house prices in the UK have increased by 5.1% in the year to July 2017 (unchanged from June 2017). The annual growth rate has slowed since mid-2016 but has remained broadly around 5% during 2017.

Those buying houses in the UK have seen a considerable amount of house price inflation in recent times.

The average UK house price was £226,000 in July 2017. This is £11,000 higher than in July 2016 and £2,000 higher than last month.

This compares to a pre credit crunch peak of just over £190,000 and a nadir of just under £155,000.

We are told by the UK statistics establishment that the best method in their opinion of measuring the impact of inflation on owner-occupiers of property is to use imputed rents which leads to this.

The OOH component annual rate is 1.9%, down from 2.0% last month.  ( OOH is Owner Occupiers Housing Costs).

As you can see there is something familiar at play a much lower number which is driven by the fact that rental inflation is much lower than house price inflation.

Private rental prices paid by tenants in Great Britain rose by 1.6% in the 12 months to August 2017; this is down from 1.8% in July 2017.

So yet again we find that the lower number has been selected! A particular issue here is that it is based on something which does not actually exist. Yes rents are paid by those who rent and they should go into the inflation numbers proportionately. But owner occupiers do not actually receive rent except in the calculations for the national accounts and so a statistical and economic concept replaces what is actually paid which is either the house price or the monthly mortgage repayment.

Oh and if London is a leading indicator ( which it often is) there is this to consider.

The growth rate for London (1.2%) in the 12 months to August 2017 is 0.4 percentage points below that of Great Britain.

Inflation Trends

This month saw a rise in UK inflation across the various measures and was driven by this.

Clothing and footwear, with average prices rising by 2.4% between July and August 2017 compared with a smaller rise of 1.0% between the same two months a year ago. Prices of clothing and footwear usually rise between July and August as autumn ranges start to enter the shops following the summer sales season.

So there was less of a summer sale in clothing this year and we have seen the numbers be erratic before as we move into autumn so we need to tread carefully. Also there was this.

Fuel prices rose by 1.6% between July and August 2017. This contrasts with the same period last year, when fuel prices fell by 1.3%.

Producer Prices

These give us an idea of what is coming down the inflation chain and there was a rise here too reversing recent trends.

Factory gate prices (output prices) rose 3.4% on the year to August 2017, up from 3.2% in July 2017, with the change in the rate being driven mainly by petroleum products. Prices for materials and fuels (input prices) rose 7.6% on the year to August 2017, up from 6.2% in July 2017, with the change in the rate being driven mainly by crude oil.


Today’s reversal on the inflation front follows a month were there was better news. Not only were the annual consumer inflation  numbers higher today but the producer ones were too. Some care is needed however as it was issue with the measurement of clothing prices and inflation back in 2010 which kicked off a lot of the debate around UK inflation methodology. Actually the issues there are still in dispute!

As to the trends there is something which may help out as we go forwards.

As many commodities including crude oil are priced in US Dollars the rise in the UK Pound £ will help us going forwards. Although of course currency movements do not always last and can turn out to be a figment of our Imagination.

Could it be that it’s just an illusion
Putting me back in all this confusion?
Could it be that it’s just an illusion now?
Could it be that it’s just an illusion
Putting me back in all this confusion?
Could it be that it’s just an illusion now?



UK Inflation is hitting the poorest hardest

As we advance on a raft of UK inflation data there has already been a reminder of one of the themes of this website which is that the UK is an “inflation nation” where the institutional bias is invariably one way. From the BBC.

Drivers saw their car insurance premiums rise by an average of £110 in the last year, a comparison site says.

More expensive repairs and recent government changes to injury payouts pushed up annual insurance costs by 16%, according to

It found drivers paid on average £781 on comparison sites for a comprehensive policy in the year to March 2017.

Average premiums are set to rise to a record high and could pass £1,000 next year, it added.

Up,up and away! I guess those pushing for driverless cars will be happy with this but few others. Some of this is that cars are more complex and thereby more expensive to repair but little or nothing was done about the rise in “whiplash” claims and there has been something of a stealth tax campaign.

IPT went up from 6% to 9.5% in 2015, to 10% in 2016, and will rise to 12% in June 2017. ( IPT = Insurance Premium Tax)

Inflation outlook

We get much of this from commodity prices and in particular the price of crude oil. If we start with crude oil it has returned to where it has mostly been for the last few months which is around US $55/6 for a barrel of Brent Crude Oil where the OPEC production cuts seem to be met by the shale oil producers. However today’s data will be based on March where the oil price was around US $5 lower so this is for next month.

Speaking of the price of oil and noting yesterday’s topic of a rigged price ( Libor) there was this on Twitter.

In 2 years oil price/bbl gyrated from $80->$147->$35->$80 while physical demand for consumption varied by less than 3%……..I recommended to Treasury Select Committee in July 2008 a transatlantic commission of inquiry into the completely manipulated Brent market…..I blew the whistle on LIBOR-type oil futures market manipulation in 2000 & lost everything I had. Treasury/FSA were complicit in a whitewash

I have speculated before about banks manipulating the oil price but how about the oil price rise exacerbating the initial credit crunch effect?

One area of interest to chocoholics in particular is cocoa prices as I pointed out last week. If we look at them in detail we see that London Cocoa has fallen from 2546 last July to 1579 with 2% of that fall coming this morning. How many chocolate producers have raised prices claiming increasing costs over the past few months? Even allowing for a lower UK Pound £ costs have plainly fallen here as we wait to see if Toblerone will give us a triangle back! Or will we discover that the road is rather one-way……

We get little of a signal from Dr. Copper who has been mostly stable but Iron Ore prices have moved downwards. From Bloomberg.

Iron ore dropped into bear-market territory, with Barclays analysts pinning the blame on lower demand from China……Ore with 62 percent content in Qingdao fell 1 percent to $74.71 a dry ton on Monday, according to Metal Bulletin Ltd., following a 6.8 percent drop on Friday.

So as we wait to see what the price of crude oil does next some of the other pressure for higher inflation has abated for now. This was picked up on the forward radar for the official UK data today.

Input prices for producers increased at a slower rate in the 12 months to March compared to the beginning of 2017………PPI input price increased by 17.9% in 12 months to March 2017, down from 19.4% in February, as prices remained fairly flat on the month and prices increased in the previous year.

There was also a slight fading of output price inflation.

Factory gate prices (output prices) rose 3.6% on the year to March 2017, from 3.7% in February 2017, which is the ninth consecutive period of annual price growth.

Our official statisticians point us to higher food prices which has been a broad trend.

In the 12 months to February 2017, vegetable prices in the EU 28 countries increased by 12.4% and in Germany they increased by 22.5%.

However whilst this was true this may well be fading a little as well. We had the issues with broccoli from Spain earlier this year but more recently I note there are cheaper prices for strawberries from er Spain. So whilst there was an impact from the lower Pound £ we wait to see the next move.


This is the new headline measure of inflation for the UK although those who remember the official attacks on the Retail Price Index for being “not a National Statistic” will wonder how a measure which isn’t one either got promoted?! Or why it was done with such a rush?

Some may wonder if this news was a factor? From the London Evening Standard a few days ago.

In London, where rents are by far the most expensive in the country, prospective tenants saw prices fall 4.2 per cent year on year………The average cost of renting a home in the UK remained almost the same as at the start of 2016, rising just 1.8 per cent, compared to the 3.9 per cent annual growth recorded a year ago, thanks to a significant increase in the number of properties available.

It does make you wonder if they thought the buy-to let rush of early 2016 might depress rents? Anyway even the official numbers published today are seeing a fading.

Private rental prices paid by tenants in Great Britain rose by 2.0% in the 12 months to March 2017; this is down from 2.1% in February 2017………London private rental prices grew by 1.6% in the 12 months to March 2017, which is 0.4 percentage points below the Great Britain 12-month growth rate.

If London leads like it usually does…

Oh and Scotland is seeing rent disinflation albeit only marginal.

Scotland saw rental prices decrease (negative 0.1%) in the 12 months to March 2017.

So we see that rents are currently a downwards pull on the annual inflation rate.

The all items CPIH annual rate is 2.3%, unchanged from last month.

Whereas if we look at house prices we see this.

Average house prices in the UK have increased by 5.8% in the year to February 2017 (up from 5.3% in the year to January 2017).

The weasel words here are “owner occupied housing costs” which give the impression that house prices will be used without actually saying it. For newer readers this inflation measure assumes the home is rented out when it isn’t and then estimates the rent and uses that.


Whilst the headline number is unchanged there is a lot going on under the surface. For example the apparent fading of rents means that the new promoted measure called CPIH seems likely to drop below its predecessor or CPI in 2017. However under the surface there are different effects in different groups. Take a look at this from Asda.

The strongest decrease in spending power has been felt by the poorest households, whose weekly discretionary income in February was 18% lower than in the same month before, falling from -£20 to -£23. This implies that the basket of essential products and services is even less affordable than previous year for the bottom income group.

The clue here is the term essential products and services which of course is pretty much what central bankers look away from as for them essential means non core. You could not make it up! But what we are seeing here is the impact of higher fuel and food prices on the poorest of our society. Those economists who call for higher inflation should be sent to explain to these people how it is benefiting them as we wonder if there will be another of these moments?

I cannot eat an I-Pad!

Meanwhile the UK establishment continues its project to obfuscate over housing costs. The whole area is an utter mess as I note that @resi_analyst ( Neal Hudson) has been pointing out inconsistencies in the official price series for new houses. Back months are being quietly revised sometimes substantially.

A challenge to our statisticians

With the modern GDP methodology we see that the explosion in Airbnb activity has had a consequence.

Colin (not his real name) contacted the BBC when he discovered the flat he rents out on Airbnb had been turned into a pop-up brothel.

You see the ladies concerned were no doubt determined to make sure the UK does not go into recession.

Looking at both their ads, some of the rates were about £1,300 a night. So if they were fully booked for the two nights that’s £2,600 each – £5,200 in total.

But as we mull the issue and wonder how our statisticians measure this? There is a link to today’s topic as the inflation numbers ignore this. Meanwhile if there was evidence of drug use as well would they be regarded as a modern version of Stakhanovite workers by the Bank of England? As Coldplay so aptly put it.

Confusion never stops



More problems emerge with the use of GDP statistics

The credit crunch era has not be kind to users of Gross Domestic Product or GDP statistics. Or to be more precise they have not been kind to those who use them as the measure of economic well-being. Regular readers will be aware that I have written more than a few articles explaining their short-comings of which the most recent was the extraordinary goings on in Ireland where earlier this year the first quarter of 2015 saw GDP growth revised up to 21% for it alone. The number itself provides its own critique really. Today sees an update from the UK on the second quarter of 2016 but there have also been a couple of developments illustrating yet more GDP trouble.

Discovering Japan

If we take the advice of Graham Parker and the Rumour then we need to remind ourselves of two facts. The first is that the GDP series in Japan has been particularly troubled which has 2 main causes. These are that they have struggled to get the data at times and also that the “lost decade” experience has put the numbers under even more pressure. The second is that whilst most countries use the output version of GDP Japan uses the expenditure version ( if memory serves me right New Zealand does too). Only 2 links I can think of there which are the Pacific Ocean and rugby union and neither helps.

Just as an explainer there are three ways of measuring GDP which are to use output (by far the most common), expenditure or income. As they are measuring the same thing they should come to the same answer but they invariably do not. As an example I looked at the numbers for Portugal around 3 years ago and there was a variation of 4%. I will let that sink in as readers recall that these numbers are judged to 0.1%! There are varying ways of dealing with this problem which was dealt with in the UK by a past Chancellor Nigel Lawson who gave orders for the numbers to be merged and the differences therefore to be hidden. I discovered this when I asked for them as officially they are the same now.

This matters as in the credit crunch there was evidence from the United States that the income series was in fact performing the best. Hence I wanted to take a look at the UK. This comes up in the Japanese experience.

Bank of Japan

This has done some research into the subject and concluded this. From the Financial Times.

Japan has begun a revamp of its gross domestic product numbers because of rising concern about their accuracy, following a Bank of Japan report that suggests a huge understatement of growth in 2014………..According to an experimental index prepared by the BoJ, Japan’s economy expanded 2.4 per cent in 2014, rather than falling 0.9 per cent as the official data showed.

The shift here has been from the expenditure data ( what people spend) to the income data or what they earn and with thanks to Simon Cox of the Economist GDP growth now looks like this.

As you can see the most marked difference is in the year of the Consumption Tax rise where a recession becomes strong growth. This is how it was done.

Using comprehensive data from tax returns, instead of the surveys underlying the official GDP numbers, BoJ economists calculated an independent figure for gross domestic income — adding up all the earnings in the economy, which should, in theory, be identical to GDP. (He means official GDP here).

This gives them a higher number.

Those estimates suggest that not only did the economy grow but real output was significantly higher, at ¥556tn compared with ¥525tn in the official figures for 2014.

Why might this be so?

One is that young companies are not answering the official economic census, so those growing fastest are missed by the GDP numbers but covered when they file their tax returns.
Another possibility is that companies misreported their sales in 2014, using the old consumption tax rate of 5 per cent rather than the new figure of 8 per cent, biasing the numbers downwards for that year.

Personally I find it a bit hard to believe that companies did not know the Sales Tax rate! The first argument has some validity and is of course true in most places. Also there is a problem with this.

But the explanation almost certainly rests with a single underlying problem: fewer and fewer people willing to answer official surveys.

That is intriguing as it seems so un Japanese to me.

What is happening here?

By switching series has the Bank of Japan changed the measurement but not reality? That is a danger here and there is a strong possibility that there is a deflator problem ( how inflation is measured) and an element of this is confusing nominal with real GDP. It was an unusual time of inflation changes in Japan due to the Consumption Tax change.

Has it found something? Quite possibly as for example it fits with the business surveys or PMIs from back then although there is a world of difference between saying there was no recession and declaring 2.4% growth. It is odd though that the ordinary Japanese have not been telling is that there economic experience was better than this and we have the problem that we know ( UK and Euro area) that sales tax rises did depress economies there.

Of course there is an enormous moral hazard problem in the Bank of Japan declaring a new set of numbers which if we look at its policies would have it singing along with the Beach Boys.

Wouldn’t it be nice if we could wake up
In the morning when the day is new……..

Maybe if we think and wish and hope and pray it might come true

There was a more specific rebuttal according to The Japan Times.

The Cabinet Office disagreed with the assessment and the methodology used to calculate business profits. It’s unlikely that the economy in 2014 continued as strongly as the previous year, considering that 2013 growth was pushed up by people buying ahead of the tax increase, according to Testuro Sakimaki, executive research fellow at the Cabinet Office research bureau.

One more time we are reminded to wonder exactly what it is that we think we are measuring?

Imputed Rent

I would like to switch to the UK bit continue looking at the income version of GDP. In the UK this has received regular boosts in recent times from Imputed Rent which is where the numbers assume that people who are owner-occupiers get a notional rent for the property. I have described in the past how there have been substantial revisions to the series with no clear explanation of why. Well in 2016 they have changed yet again for once it looks like lower but again there is no clear explanation. Here from the Office for National Statistics is a statement from earlier this year.

Further, because the method is naturally aligned with the CPIH, the discontinuity in 2010 can be removed and the whole of the series will be on a comparable basis.

Ah excellent! It is now consistent with something which has been a shambles or as they put it “Not a National Statistic” The impact?

Their effect is to raise the level of the estimates of imputed rental and to lower the growth of the pre-2010 series.

Does it matter?

Imputed rental represents around 10% of GDP as measured by expenditure.

Whilst some of this is from the spring the issue is live again and I am chasing it up as the explanations such as they are do not convince.


On today’s journey we learn to have even less trust in the GDP numbers. This is not the fault of the statisticians who mostly do their best it is that they have been sent on a journey that has elements of a fool’s errand. Add in some political interference and you have quite a toxic mixture. The income series on which the Bank of Japan is so keen has its uses but also as I have highlighted its problems.

Ironically in a way the UK had some good news this morning.

UK GDP in volume terms was estimated to have increased by 0.7% in Quarter 2 2016, revised up 0.1 percentage points from the second estimate of GDP published on 26 August 2016.

Although of course what does 0.1% tell us? There was a welcome rise in investment which so many told us would not be happening and places which pushed a post EU leave vote crisis theme like the FT  will need  a large slice of humble pie in reporting this. From the UK ONS.

0.4% growth in services in July, driven by retail, films and computer programming.

I guess we will not hear from Bank of England Governor Mark Carney today either!

Meanwhile those who remember my theme that our numbers for the important services sector need urgent work can smile and be worried simultaneously by this.

When comparing Quarter 2 2015 with Quarter 2 2016…. 11.6% growth in exports of services, which contributed 1.3 percentage points to GDP growth.


The problem that is Imputed Rent and hence GDP

Over the lifespan of this website I have explained quite a few problems with our main measure of economic well-being and growth called Gross Domestic Product or GDP. This time I will focus on the problems and issues caused by a rarely discussed issue called imputed rent. This concept skulks away in the back ground partly because it is from the income version of GDP and the main figure is the output version. For those who are not aware of the state of play there are 3 ways of measuring GDP which are output, expenditure and income. Output is the most commonly used and if you here GDP mentioned then invariably that is what is meant but not every version is as for example Japan has a more expenditure based calculation.

There have been two roads which have led me to the Income GDP version. They are that the American numbers were a better guide post credit crunch to economic activity than the output version, and my interest in the housing sector reflected in this instance by the rent issue. Sadly such numbers are restricted access in the UK as a problem in particular occurred in the late 1980s under the then Chancellor but now Lord Lawson. In theory the 3 versions are supposed to come to the same answer but back then the variation was wide enough for him to order our statisticians to prioritise the output numbers and “adjust” the other versions. I can give you an example from Portugal of how the 3 numbers can vary as a while ago when I was looking at the data the divergence was 4%. It makes you think about those who discuss 0.1% changes does it not?!

What is Imputed Rent?

The story starts here.

In the national accounts, owner occupiers are deemed to be unincorporated businesses producing housing services, which they then consume.

Are “deemed to be”! So here is the first issue which is that it does not actually exist. After noting that let us press on.

The principle involved is to impute a rental value for an owner-occupied property, which is the same as the rental that would be paid for a similar property in the private rented sector. The imputed rent methodology calculates rent for owner occupiers and rent-free dwellings.

Why is this done. The US Bureau for Economic Analysis explains.

 The largest imputation in the GDP accounts is that made to approximate the value of the services provided by owner-occupied housing.  That imputation is made so that the treatment of owner-occupied housing in the GDP is comparable to that of tenant-occupied housing, which is valued by rent paid.  That practice keeps GDP invariant as to whether a house is owner-occupied or rented.

Their explanation is from 2006 when Imputed Rent was already 6.2% of GDP and the largest imputation which combined were 14.8% of GDP. It then argues this.

Without imputations, the GDP story is incomplete and can be misleading.

The other side of the argument is that including things which do not exist – owner occupiers do not receive Imputed Rent – is misleading.

Measurement of Imputed Rent

As it does not exist it cannot itself be measured and the only route to it is to measure actual rents. This poses its own problems in practical terms as this from the UK ONS demonstrates.

Imputed owner occupier rent is calculated from an average rent per room being multiplied by the total number of rooms in owner-occupied dwellings. Rent per room is calculated from Actual Rental (see section 02.4.1) and number of rooms rented (based on Living Cost and Food survey – LCF).

In the UK they will have some idea of the number of rooms but there will be errors in those numbers. However the main issue is whether we have numbers for rents which are reliable. I am sure that there are issues in every country but the UK has had particular problems and this is linked to my articles on the CPIH measure of inflation which includes rents. My view is that this has been a shambles illustrated by the way that the UK establishment had to abandon its rental estimates because they were in disarray.

You might think that a complete change to the actual rental numbers would have a big impact on Imputed Rent. In fact they seemed to sail through it pretty much unscathed as all sorts of other adjustments were made to provide the same answer. Or as Kylie would put it.

I should be so lucky
Lucky, lucky, lucky

As the luck quotient rose the credibility one fell.

Upwards Revisions

Back in the 2013 Blue Book the UK ONS decided the Imputed Rent numbers had been too low.

There are upward revisions to the level of total annual HHFCE (national concept) in all years from 1997 to 2011. The largest revisions, of just under 2% of total HHFCE, are in 2008 to 2011.

HHFCE is Household consumption and increasing it by 2% is a big deal and it was Imputed Rent that did it. Actually it more than did it as looking at 2010 will explain. UK household consumption and hence GDP rose by £17.1 billion of which the rise in Imputed Rents was £33.6 billion. The difference was a rise in estimates of repairs of £12.7 billion and some smaller items such as smuggling.

The New Economics Foundation weighs in

Just over a year ago the NEF gave an idea of scale.

Inclusion of how much home-owners would pay if they actually rented boosted UK GDP in 2014 by £158bn – a 8.9% share

We also got an idea of the scale of the housing and Imputed Rent boom.

A growing proportion of GDP is nothing more than earnings from property. 12.3%  of the UK’s measured GDP in 2014 was rent and “imputed rent”…….Since 1985, rent and imputed rent have almost doubled as a share of GDP, from 6.2%.


In the last few days and weeks the situation has changed again and let me show how.

these changes will have a substantial impact both on imputed rental itself and on total current price GDP.

Okay how? I summarised it thus on the Royal Statistical Society website.

For those who have not looked at the numbers then nominal UK GDP has been revised up by at least £50 billion in each of the years 1997 to 2006 due to Imputed Rent and then by a declining amount up to 2011. To give an idea of scale VAT fraud is considered a big deal but changes to it top out at £2.1 billion in 2011.

The official view on the changes is as shown below.

Although this improved the series for the most recent period, bringing it in line with the CPIH, it also led to a discontinuity (which has now been removed in the new method).

The discontinuity peaked in 2010 and I would tell you by how much but the link to the numbers on the official ONS site take you to a page which does not exist. Friday’s update tells us this.

In 2014, annual real GDP growth has been revised up by 0.3 percentage points from 2.9% to 3.1%,

Not the strongest grasp of mathematics there I think! Anyway there was yet another change to Imputed Rent as it added 0.1% to economic growth in that year (and in 2012 too).


You are perhaps waiting for an idea of scale so let me help out from the last quarter of 2015 when Imputed Rentals in the UK reached £43.2 billion in current price terms compared to £24 billion a decade before. That is a lot for a number which not only has theoretical issues in terms of its concept but the way we have tried to measure it has been very flawed as otherwise we would be needing all these “improvements” would we?! There was an obvious problem here in a nation the size of the UK.

The LCF data are based on around 400 households’ rental prices per quarter,

So whilst I welcome the efforts to improve the quality of the UK data on rents – which also feeds into the inflation numbers – there is a clear problem with what we have been told in the past. This feeds into less confidence in what we are being told now. At a time of house price booms this poses more than a few questions for the UK economic landscape and as for the Imputed Rent numbers well they continue to sing along with Jeff Lynne and ELO.

You took me, higher and higher
It’s a livin’ thing,
It’s a terrible thing to lose
It’s a given thing
What a terrible thing to lose.

Oh and this whole episode provides another critique to nominal GDP targeting.

Is that it for UK Retail Sales?

Today sees the publication of one of the bedrocks of the recent UK economic improvement where lower inflation led to higher real wages which resulted in strong retail sales numbers. This has boosted Gross Domestic Product via consumption. If you go back to January 29th last year you will see that I pointed out this would be a beneficial impact on the UK economy of the oil price fall. However as I pointed out on Tuesday we are seeing the influence of that move start to wane a little and it makes us wonder about real wages and retail sales. This is reinforced by the fact that wage growth has not only not picked up it has moved between flatlining and fading.

Average weekly earnings for employees in Great Britain increased by 2.1% including bonuses.


The mostly clothes based retailer Next has weighed in on the subject already today.

The outlook for consumer spending does not look as benign as it was at this time last year. Although employment rates are at record highs, growth in real earnings (the difference between wage growth and inflation) slowed markedly from September last year. In addition, growth in output across services, manufacturing and construction all decelerated throughout the course of the year.

They also expect to do worse than the general trend.

we also believe that there may be a cyclical move away from spending on clothing back into areas that suffered the most during the credit crunch.

Indeed for a company which has been doing well the numbers are rather downbeat.

We now expect NEXT Brand full price sales growth for the full year to be between -1.0% to +4.0%, with a mid-point of +1.5%…….However at this stage we think it is best to prepare ourselves for what could be a difficult year.

Oh and did I say downbeat?

The year ahead may well be the toughest we have faced since 2008.

Some care is needed here as Next has done well and some of this will be specific to it and some to the clothing industry but of course that is a component of UK retail sales. The share price is down over 8% as I type this.

Why are so many central banks cutting interest-rates?

This week has seen several moves making I think 48 in total now for 2016. This morning has seen this which provides some insight as to what is happening in China. From Bloomberg.

The central bank lowered the benchmark discount rate by another 12.5 basis points to 1.5 percent, it said in a statement Thursday in Taipei.

It was also be remiss of me not to welcome a new member to the negative interest-rates club.

The Monetary Council of the Magyar Nemzeti Bank reduced the central bank base rate by 15 basis points to 1.20%, in effect from 23 March 2016.

This made the overnight rate some -0.05% in Hungary. Have you spotted the size of the moves ( 0.125% and 0.15%). I would make them wear a clown’s outfit if they wanted to announce such moves as who believes such a move has any material impact?

However the international scene remains troubled which has implications for us in the UK.

UK Retail Sales

Firstly the news continues to be good.

Year-on-year estimates of the quantity bought in the retail industry showed growth for the 34th consecutive month in February 2016, increasing by 3.8% compared with February 2015. The underlying pattern in the data, as suggested by the 3 month on 3 month movement in the quantity bought, showed growth for the 27th consecutive month, increasing by 0.8%.

We also see the same main driver.

Average store prices (including petrol stations) fell by 2.5% in February 2016 compared with February 2015, the 20th consecutive month of year-on-year price falls.

We are spending some 1.4% extra to get volume gains of 3.8%. Excellent! I would make all the “deflation nutters” have to write that on a blackboard in the manner of Bart in The Simpsons.

However we also are getting signs that the peak may well has passed us by.

The amount spent in the retail industry increased by 1.4% compared with February 2015 and decreased by 0.7% compared with January 2016……..Compared with January 2016, the quantity bought in the retail industry is estimated to have decreased by 0.4%.

Also we see what may have spooked Next.

In February 2016, the quantity bought in textile, clothing and footwear stores decreased by 2.4% compared with February 2015 and by 0.4% compared with January 2016.

For once the weather may genuinely be to blame but let’s not go there as it gets the blame far too often.

Imputed Rent

This is an important topic which gets little media time. It is required in the income version of the GDP numbers to make them balance with the expenditure and output ones. Believe it or believe it not but house owners are “imputed” to receive rent and this is added to GDP. In my opinion this causes a litany of problems and if you read my articles on the subject not the least of this is our lack of knowledge of UK rents inflation as the CPIH shambles uses the same data.

Yesterday saw another piece of odd behaviour in this area. From the Office for National Statistics.

The decrease in weight is being driven by three classes. The largest decrease, the Imputed Rentals class is unique to CPIH. The class has fallen by 13ppt from 178ppt to 165ppt.

So in the middle of a housing boom when they have only just told us that house prices are rising at an annual rate of 7.9% and we have estimates of rent increases of 3.3% which both far exceed inflation we see a reduction in weights! Eh?  I would like to add that the Imputed Rental series has seen substantial revisions in recent years.

You may enjoy this bit as you note above that the weight has fallen because the explanation tells us this.

Further improvements to the methodology for actual and imputed rentals in the National Accounts will be introduced in BB16. The changes will result in further upward revisions in the expenditure on imputed rents, which will in turn increase the OOH weight in CPIH

Up is the new down.

Oh and never believe anything until it is officially denied.

The revision to the OOH index will therefore directly affect the relevant household expenditure current price estimates in the National Accounts, but not the volume estimates.

So you have more inflation but it does not affect volume. Odd because the past changes  boosted it and GDP  was Yazz right about this series?

The only way is up baby

Good job we do not rely on the GDP numbers…….


The UK Retail Sales series has been a good news story for the UK economy and I do not expect that to end but we are entering a phase which will see some slip-sliding away. If we look at the runes the price of crude oil may well be dipping again as it falls below US $40 for Brent Crude today but a return to past lows would not be as cheap after we buy it with a depreciated UK Pound £ which is below US $1.41 as I type this. However we should be grateful for what we have seen as by contrast the media hype about economic recovery in Italy has seen this reality today. From Istat.

The average of the last three months compared to the previous three months decreased by 0.1%.The unadjusted index decreased by 0.8% with respect to January 2015.

If we move to the GDP numbers then we have the issue of what to do about Imputed Rent? There are theoretical issues but today let us stay with the simple practical one that we in the UK have enormous trouble in measuring it and this song seems appropriate.

With their up diddley up-up and their down diddley down-down.Up! down! Flying around!Looping the loop and defying the ground!

Let me finish by wishing you all Happy Easter and a good news story from Dave Grohl of the Foo Fighters who responded to a call for help with this letter to Cornwall Council.

I believe that it is crucial that children have a place to explore their creativity and establish a sense of self through song. The preservation of such is paramount to the future of art and music. Without them, where would we be?


If you want to know more about the UK current account and its problems in an audio format here is a piece I did for Share Radio.

Meanwhile if we move to the world of video here is me on TipTV discussing central banking policy.