Hi,
Got a few q’s about the CPI and am hoping that someone can help. I’m on the very beginning of my investing journey so I appreciate your patience and help in advance if this sis all pretty basic stuff.
Start with the basic’s I guess.
What is it actually, what is it a measure of?
How is it calculated?
What influences it?
And what influences does it have on investing, both property and shares?
Cheers!CPI (consumer price index) is a measure of inflation. It is determined by the prices of various commodities – not sure exactly is excluded, but most things are included. The CPI figures come out each quarter. You would want your property or shares to grow by at least the CPI or you will be going backwards.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
As relates to property, rent is included as is building cost, but house sale prices are not.
Cheers, F.[cowboy2]Wow there’s a scarey thought – lets include house prices in the CPI!
Inflation in the last few years would have forced interest rates to hit 20% and made the Aussie $ look like the Lira!
I guess there are lies, damned lies, and the CPI.
Well, here’s the thing tom; while HPI isn’t included in CPI, it is at least in part (IMO largely) responsible for some of the inflationary pressures now and into the next few years. There are 3 main ways that domestic supply of money increases – government spending, foreign investment, and debt (consumer and business).
Australia is nearing an unsustainable level of household indebtedness, and surveys have shown that this is not linked to job security. I read recently that 40% of mortgage holders have ‘released equity’ for discretional spending over the last 5 years…
So whether the CPI measure of inflation includes HPI or not, house price inflation does lead to price inflation.I laughed again tonight to hear the Labor Party claim their victory in the by-election for Mark Latham’s seat was caused by the Lib’s breaking their promise to keep interest rates low! I don’t doubt it either, the kind of voters who are likely to make such tenuous links are the same ones who would have several credit cards maxed out and no savings (perhaps they don’t need any as they have several highly geared IPs?) – the very people who’s excesses have forced the RBA to raise interest rates!
Cheers, F.[cowboy2]
Thanks for the info Terry, it was very helpful, appreciate it. The following discussions also got me thinking about some of the complexities of an economy. Good to be here.
Cheers.
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