Inflation, essentially is the amount of money (allowed to be) introduced into the financial system. It is the effect of paying more for the same measure of goods and
services used. It has been determined in the UK certainly for 2007 that The Bank of England's job is to keep the UKs target to under 2%, for more on this see
The Consumer Price Index
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The Consumer Prices Index (CPI) is measured by valuing a 'basket' of goods and
services over time. This 'basket' seems to contain differing items from time to time as the Monetary Policy Committee determines it's make up.
So when measuring house price increases and examining
UK Infation between 1975 to 2007
it's necessary to deduct or factor in the effects of 'normal' price increases. During the 1970's (anyone remember?) when globally, oil prices were hiked massively, this sparked rampant 'stagflation' and a series of strikes for more pay. It's an obvious reaction - huge increases in energy costs filter down and everyone wants more money.
So with lack of energy, blackouts, the 3 day week, ultimately the UK economy had inflated by 25% at it's peak in 1974. Interest rates went to 15% And house prices more than quadrupled in that decade. See how
all three indices have performed
over the period.
Nowadays we can't believe that property is only meant to double every 7 years. So property is a good hedge against rising prices but and this is a big but - if you only have one property then it is all relative as you have to live somewhere!
It can be seen from over the last 35 years that our economy is now much more stable than it has been in the past and that even with a crumbling Northern Rock and the 'credit crunch' that the background for property investing has become much more stable.
Return from Inflation to Investment Property Financing