With the Bank of England having finally re-launched their program of Quantitative Easing, many commentators will again be decrying the Bank’s so-called “inflationary bias”. These will be the same commentators who condemn the Bank for “pumping up” a house price bubble over the last decade.
But has inflation really been so bad? Let’s take a historical perspective. This chart shows the average annualized growth rate of consumer prices, house prices, and earnings, over the last six decades:
Average Compound Annual Growth Rate, By Decade. Source: measuringworth.com, Nationwide
So when was an excess supply of money leading to an excessively fast rise in earnings and consumer prices and asset prices? Not recently, would be my answer.
{ 2 comments… read them below or add one }
I think the relationship between house prices and earnings is genuinely out of whack, as I’ve written before. You can see it by eye balling your graph, though to an extent you can also see my views were colored by the 1990s.
The 1990s and the 1950s — glorious times to buy houses, as I think the UK ‘folklore’ of the property market would attest!
Yeah, agreed. I didn’t expect to see house price inflation that far out of whack over the 2000s before I ran the numbers.
This is not perhaps the best way to draw the graph; it would be better to compare peak-to-peak across business cycle or bust-to-bust or something.