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Not sure how inflation is calculated globally; but where I live (Norway) we leave housing costs out of inflation. That always seemed very strange to me. Our mai

Not sure how inflation is calculated globally; but where I live (Norway) we leave housing costs out of inflation. That always seemed very strange to me. Our main cost of living, (which has gone through the roof the last 25 years) is somehow left out of the calculation. My rent, or cost of buying a house - is much more important than the cost of a Snickers bar.

yokto 5y ago
I don't know about Norway, but in France it is weighted at 7% of the inflation calculation, which is way below what people actually pay for housing. In theory, it is because housing is considered an investment, but in practice it doesn't seem to hold up and is critized by some economists. I also find it very strange.
- thomasahle 5y ago
  > it is because housing is considered an investment How great would it be to live in a world where house prices never rose, and people just invested in stock or bitcoin.
- bjarneh 5y ago
  > it is because housing is considered an investment Ok, perhaps that partly makes sense for people buying homes. But paying rent cannot possibly be considered an investment; unless you are trying to marry a landlord or something :-)
freddie_mercury 5y ago
Norway includes housing. Says so right on the page from Statistics Norway that says how CPI is calculated.
- bjarneh 5y ago
  I stand corrected; I just assumed they were, since others do and inflation has been reported as very low for the past 20 years. It's hard to imagine that housing could be part of this calculation the way the housing market in Norway has developed in the past 25 years. I guess it's the way the house/energy is lumped into a category which is weighted low, at least in comparison to how much of our expenses it represents. I guess the people in the US ignore it completely, we just weigh it wrong :-) > Why aren’t house prices included in measures of inflation? Should they be? https://www.economist.com/the-economist-explains/2021/07/29/why-dont-rising-house-prices-count-towards-inflation https://www.economist.com/the-economist-explains/2021/07/29/...
  - gruez 5y ago
    >I guess the people in the US ignore it completely, we just weigh it wrong :-) uhh what? It's the same situation in the US. "houses" aren't a component of inflation, but "housing" is. According to the BLS, the "Shelter" component makes up 33.3% of the CPI. https://www.bls.gov/cpi/tables/relative-importance/2020.htm https://www.bls.gov/cpi/tables/relative-importance/2020.htm
valdiorn 5y ago
In Iceland, we can't include housing in the calculation, become the vast majority of mortgages are inflation linked; meaning if inflation goes up, so does the remaining capital on your mortgage (yes, it's insane, if you want to know more there's articles online about it). If we included housing, it would push up mortgages, which would make housing more expensive, which would drive inflation, which would push up mortgages, and so on. Meanwhile my UK mortgage has 1.6% interest rate, and my house has gone up in value by 100k since I bought it 18 months ago, and I've just received a raise specifically to adjust for increased market rates and inflation. Life's pretty sweet here in comparison to back home. Needless to say; not going back :)
- bjarneh 5y ago
  Your mortgages are inflation adjusted? That's completely nuts, if you pay the interest only on your loan it keeps growing to reflect inflation; nice! :-) > my house has gone up in value by 100k since I bought it 18 months ago Yikes, that sounds like a heated housing market, unless your house cost £ 20 million to begin with :-)
- octoberfranklin 5y ago
  Can you recommend a good article about how this works? It sounds evil at first glance, but thinking about it some more it might be very good. This discourages people from buying houses with leverage when they think inflation is going to accelerate. It won't help them, because the leverage is inflation-indexed! Here in the USA, every time inflation starts to accelerate people hoard housing; this causes all sorts of social problems. Also: in the USA the only other ways for most ordinary people to easily hedge against inflation are buying gold or loaning money to the government (inflation-indexed government bonds). It sounds like your country has inflation-indexed mortgage bonds. I would rather lend money to my neighbor than my government. Personally, I am incredibly impressed with how you guys dealt with the 2007 global financial crisis. You did the right thing: you threw the criminals in jail. Even though they were bankers. I now evaluate Iceland's economic policies from the starting assumption that they understand the world better than we do.
Valakas_ 5y ago
Exactly. I mean food that we buy for 10€, 15€ a pop counts for inflation. And then the most expensive thing we ever purchase in our lives, say 400 000€ right now, and the effect on inflation on that doesn't count? Doesn't make sense to me.

yokto 5y ago

I don't know about Norway, but in France it is weighted at 7% of the inflation calculation, which is way below what people actually pay for housing. In theory, it is because housing is considered an investment, but in practice it doesn't seem to hold up and is critized by some economists. I also find it very strange.

thomasahle 5y ago
> it is because housing is considered an investment How great would it be to live in a world where house prices never rose, and people just invested in stock or bitcoin.
bjarneh 5y ago
> it is because housing is considered an investment Ok, perhaps that partly makes sense for people buying homes. But paying rent cannot possibly be considered an investment; unless you are trying to marry a landlord or something :-)

freddie_mercury 5y ago

Norway includes housing. Says so right on the page from Statistics Norway that says how CPI is calculated.

bjarneh 5y ago
I stand corrected; I just assumed they were, since others do and inflation has been reported as very low for the past 20 years. It's hard to imagine that housing could be part of this calculation the way the housing market in Norway has developed in the past 25 years. I guess it's the way the house/energy is lumped into a category which is weighted low, at least in comparison to how much of our expenses it represents. I guess the people in the US ignore it completely, we just weigh it wrong :-) > Why aren’t house prices included in measures of inflation? Should they be? https://www.economist.com/the-economist-explains/2021/07/29/why-dont-rising-house-prices-count-towards-inflation https://www.economist.com/the-economist-explains/2021/07/29/...
- gruez 5y ago
  >I guess the people in the US ignore it completely, we just weigh it wrong :-) uhh what? It's the same situation in the US. "houses" aren't a component of inflation, but "housing" is. According to the BLS, the "Shelter" component makes up 33.3% of the CPI. https://www.bls.gov/cpi/tables/relative-importance/2020.htm https://www.bls.gov/cpi/tables/relative-importance/2020.htm

valdiorn 5y ago

In Iceland, we can't include housing in the calculation, become the vast majority of mortgages are inflation linked; meaning if inflation goes up, so does the remaining capital on your mortgage (yes, it's insane, if you want to know more there's articles online about it). If we included housing, it would push up mortgages, which would make housing more expensive, which would drive inflation, which would push up mortgages, and so on. Meanwhile my UK mortgage has 1.6% interest rate, and my house has gone up in value by 100k since I bought it 18 months ago, and I've just received a raise specifically to adjust for increased market rates and inflation. Life's pretty sweet here in comparison to back home. Needless to say; not going back :)

bjarneh 5y ago
Your mortgages are inflation adjusted? That's completely nuts, if you pay the interest only on your loan it keeps growing to reflect inflation; nice! :-) > my house has gone up in value by 100k since I bought it 18 months ago Yikes, that sounds like a heated housing market, unless your house cost £ 20 million to begin with :-)
octoberfranklin 5y ago
Can you recommend a good article about how this works? It sounds evil at first glance, but thinking about it some more it might be very good. This discourages people from buying houses with leverage when they think inflation is going to accelerate. It won't help them, because the leverage is inflation-indexed! Here in the USA, every time inflation starts to accelerate people hoard housing; this causes all sorts of social problems. Also: in the USA the only other ways for most ordinary people to easily hedge against inflation are buying gold or loaning money to the government (inflation-indexed government bonds). It sounds like your country has inflation-indexed mortgage bonds. I would rather lend money to my neighbor than my government. Personally, I am incredibly impressed with how you guys dealt with the 2007 global financial crisis. You did the right thing: you threw the criminals in jail. Even though they were bankers. I now evaluate Iceland's economic policies from the starting assumption that they understand the world better than we do.

Valakas_ 5y ago

Exactly. I mean food that we buy for 10€, 15€ a pop counts for inflation. And then the most expensive thing we ever purchase in our lives, say 400 000€ right now, and the effect on inflation on that doesn't count? Doesn't make sense to me.