Why have rent and mortgage prices doubled(or more) in the past 2 years?
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Central banks have raised interest rates in an attempt to control consumer spending and reduce inflation. If mortgages become more expensive then so do rents on properties bought on buy-to-let.
Unfortunately, this is the only tool they have for controlling inflation and it only works if inflation is being driven by consumer spending.
Currently inflation is not being driven by consumer spending but by energy prices. This means that raising interest rates has had so far zero effect on reducing inflation. However, reducing consumer spending power drives increasing demands for higher wages – which do drive inflation.
Governments need to do two things to break the cycle and actually control inflation. Firstly reign in central banks attempting to wield the blunt instrument of interest rates and actually look at the true inflationary pressures. It’s bitter medicine but it needs to be administered to those who can best afford it instead of those who can afford it least. Secondly take a hard line on energy companies and investors leveraging the difference between wholesale prices and retail prices to ensure excess profits for both.
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