The Royal Institute of Chartered Surveyors latest housing market survey shows reports of price declines not seen in nearly 10 years. This the FT, like one of Pavlov’s dogs, says will ease the pressure for a rise in interest rates. Of course, the Bank of England did indeed raise interest rates partly in an attempt to cool the housing market. But the FT, and other commentators always do this with such reports. One set of data about one inflation factor do not alter the argument for the direction of interest rates. The world economy is highly unstable at this time, let alone our domestic economy.

The lowering of interest rates after the dot.com collapse and 9/11 fed global asset price inflation in the form of rising house prices. We have had surging demand for oil, a consequence of rapid Chinese economic expansion, whose cheap goods the western consumer, flush with his sense of housing wealth, as bought eagerly.

At this point, it is unknown if the authorities’ response to the economic catastrophes of 2000-1 were wrong, sufficient, or overdone, although economists are always very certain about such things. The prospect that rates have remained too low for too long leading to surging consumer price inflation should not yet be discounted just because house prices have retrenched a little, and the western economies are slowing again. There is enough coverage (even in the FT itself) to remind reporters that, just as in the 1970s, it is possible to have a lack of growth, stagnant or falling house prices, and rising inflation, and therefore pressure on interest rates. It is just called stagflation.

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