Inflation realities

SIR – In the Budget next week, Philip Hammond, the Chancellor of the Exchequer, should introduce two important technical measures that will improve monetary policy and the functioning of financial markets.

First, the measure of inflation the Bank of England is instructed to use as its inflation target should be changed from the current CPI to the new broader CPIH measure (which includes housing costs). The Office for National Statistics now treats this as its official main inflation index.

The drawbacks of the Bank of England’s target not including any measure of housing costs (often one fifth or more of household budgets) was noted by Mervyn King as far back as 2003.

Secondly, the Chancellor should instruct the Debt Management Office to issue new Cpih-linked government bonds and discontinue the issuance of Rpi-linked bonds. RPI has not been an official measure of inflation since 2013.

Investors seeking inflation protection should have available investment instruments that protect them from actual inflation (CPIH), not a measure that the Government states is not inflation (RPI).

That would not only assist investors in UK government bonds. It would also create a proper inflation-protected benchmark in financial markets and improve portfolio allocation. Andrew Lilico

Europe Economics Julian Jessop Institute of Economic Affairs Professor Philip Booth St Mary’s University, Twickenham Professor Tim Congdon

Institute of International Monetary Research, University of Buckingham Professor Akos Valentinyi

University of Manchester Professor Kent Matthews Cardiff Business School Professor Patrick Minford Cardiff Business School Professor Trevor Williams

University of Derby Professor Anthony J Evans ESCP Europe Business Graeme Leach

Macronomics