Lately, we have demonstrated that the evolution of various components of CPI and PPI in the United States is not a random process but rather a predetermined one with long-term sustainable trends [1-4]. Using these trends, one can predict consumer and producer price indices for various goods, services and commodities [5-7]. Moreover, share prices for selected S&P 500 companies are also well described in the past by the differences in the PPI and CPI [8,9]. The near future will test the predictive power of our model.
In [4-7], we presented the evolution many commodities with varying weight in the PPI. But there are many more commodities of interest for producers, consumers, and investors. Here we compare the indices for copper and grain. The evolution of the producer price indices of these two commodities is independent, but both give a good example of the absence of clear sustainable trends. In other words, not every commodity price is predictable, as mentioned in [4].
Figure 1 displays the PPI and the index for copper ores since 1988. The difference of these two indices has a remarkable history; no big change between 1988 and 200, and then a sudden peak in the copper index. The peak survived during three years before 2008, and then the index dropped by 300 units back to the PPI level. Despite the early start in 2005 seems oil independent, the most recent fall looks to be driven by oil price and the overall economic slowdown. In 2009, one can observe a slight increase in the cooper index likely associated with the rise in oil price. In the long-run, oil price should decline to the level of $25 in 2016. Therefore, copper price will likely not be growing to its peak in April 2008 (491.7). In any case, our model based on the presence of sustainable trends in the difference between the PPI and individual PPI is not applicable to copper ores.
In [4-7], we presented the evolution many commodities with varying weight in the PPI. But there are many more commodities of interest for producers, consumers, and investors. Here we compare the indices for copper and grain. The evolution of the producer price indices of these two commodities is independent, but both give a good example of the absence of clear sustainable trends. In other words, not every commodity price is predictable, as mentioned in [4].
Figure 1 displays the PPI and the index for copper ores since 1988. The difference of these two indices has a remarkable history; no big change between 1988 and 200, and then a sudden peak in the copper index. The peak survived during three years before 2008, and then the index dropped by 300 units back to the PPI level. Despite the early start in 2005 seems oil independent, the most recent fall looks to be driven by oil price and the overall economic slowdown. In 2009, one can observe a slight increase in the cooper index likely associated with the rise in oil price. In the long-run, oil price should decline to the level of $25 in 2016. Therefore, copper price will likely not be growing to its peak in April 2008 (491.7). In any case, our model based on the presence of sustainable trends in the difference between the PPI and individual PPI is not applicable to copper ores.
Figure 1. Evolution of the price index of copper ores and the PPI.The producer price index for grains presents another difficult case. Figure 2 depicts the PPI and the index, and their difference between 1960 and 2009. There is no sustainable trend in the difference as well. Between 1974 and 2005, the difference demonstrated an overall growth with several spikes, the strongest one in 1996. The presence of a long-term positive trend in the difference is completely due to the growth in the PPI because the index for grains fluctuates around a constant line. Lately, the grains index suffered the biggest rise and fall in absolute terms. The main increase started earlier 2007 and stretched into 2008, with the peak in June 2008. Volatility during the past two years was so high that it is difficult to predict the next move of the price index of grains. Seemingly, it has been repeating the trajectory of the index for crude oil in 2008 and 2009. If it is the case, one can expect that the index for grains will continue to oscillate around the constant level of ~100.
Figure 2. Evolution of the price index of grains and the PPI. Conclusion
The producer price index for copper and that of grains both demonstrate unpredictable behavior with unclear future. This observation only emphasizes the importance of sustainable trends observed for other commodities. In the US economy, as in many natural systems, there exist trend components, oscillating components, and random components.
References
1. Kitov, I., Kitov, O., (2008). Long-Term Linear Trends In Consumer Price Indices, Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(2(4)_Summ), pp. 101-112.
2. Kitov, I., (2009). Apples and oranges: relative growth rate of consumer price indices, MPRA Paper 13587, University Library of Munich, Germany.
3. Kitov, I., Kitov, O., (2009). A fair price for motor fuel in the United States, MPRA Paper 15039, University Library of Munich, Germany,
4. Kitov, I., Kitov, O., (2009). Sustainable trends in producer price indices, Journal of Applied Research in Finance, v. 1, (in press)
5. Kitov, I., Kitov, O., (2009). PPI of durable and nondurable goods: 1985-2016, MPRA Paper 15874, University Library of Munich, Germany
6. Kitov, I., (2009). Predicting gold ores price, MPRA Paper 15873, University Library of Munich, Germany
7. Kitov, I., (2009). Predicting the price index for jewelry and jewelry products: 2009-2016, MPRA Paper 15875, University Library of Munich, Germany
8. Kitov, I., Kitov, O., (2009). Predicting share price of energy companies: June-September 2009, MPRA Paper 15863, University Library of Munich, Germany
9. Kitov, I., Kitov, O., (2009). Modelling selected S&P 500 share prices, MPRA Paper 15862, University Library of Munich, Germany
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