OWNER-OCCUPIED HOUSING COSTS AND BIAS IN THE IRISH CONSUMER PRICE INDEX. Quarterly Economic Commentary, Autumn 2007

McCarthy, Colm (2007) OWNER-OCCUPIED HOUSING COSTS AND BIAS IN THE IRISH CONSUMER PRICE INDEX. Quarterly Economic Commentary, Autumn 2007. [Working Paper]

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Abstract

The treatment of owner-occupied housing costs is a recurring problem in the construction of consumer price indices, and there are competing methodologies. In the most widely-used Irish index, the Payments Approach, which attaches a weight to a term involving historical house prices and an interest rate, is used to measure these costs. It is argued that this has resulted in a substantial over-statement of inflation in recent quarters, and that the over-statement will continue for some time. The Irish version of Eurostat’s Harmonised Index of Consumer Prices, recently running well below the CPI, is a more reliable guide. Few national statistical offices use the Payments Approach, and it is argued that the procedure used in Ireland should be reviewed.

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