In Australia we removed housing purchase costs from the inflation basket in 1998.
To no ones surprise 20 years later it has ballooned wildly out of control over that timeframe.
If you remove something from the basket, you make every person who wants to buy that item/service non-existent in the eyes of a central bank.
Yet many seem to defend how inflation is decided and changed on a whim. Combine that with the magic number of 2-3% inflation being good, with any other number being bad, and it's clear that the current paradigm which was created in a very different world 60 years ago is a complete fucking mess.
That happened in the U.S. as well. If asset prices had stayed in the CPI then presumably interest rates would have to have stayed higher to keep those prices from getting out of control.
If the buying power of wages goes down in terms of goods/services that can be purchased, how does inflation change?
Seems like the huge QE hasn't caused interest rates to increase. But is that independent of wages/cost of necessities?