London — A multi-year boom in global house prices, which even a pandemic has failed to halt, is forcing central banks around the world to confront a knotty question: what, if anything, should they be doing about it?
“The debate of whether we actually are reflecting inflation properly will come up more and more. House prices will start getting a lot of attention,” said Manoj Pradhan, co-author ofGlobal residential property prices have risen 60% in the past 10 years, according to a Knight Frank index. In 2020, even as Covid-19 choked the world economy, they climbed an average 5.6%, with 20%-30% jumps in some markets.
If real inflation is higher than the official consumer price index is measuring, it could imply that central bank or government policies are more expansionary than they should be. There are strong arguments for excluding headline shifts in house prices from inflation indices. Housing is, for most people, a lifetime purchase rather than an ongoing expense, which they are designed to gauge.
Crucially, economists believe including these costs might have lifted eurozone inflation by 0.2 to 0.3 percentage points, taking the ECB nearer its elusive inflation target of close to 2%.Ultimately, such policymaking shifts may be risky amid uncertainty created by the pandemic.
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