We have been routinely reporting on the difference
between the headline and core CPI since
2008. Figure 1 illustrates our general finding that this deference can be
well approximated be a set of linear trends. The last trend likely finished in
2009. That’s why we expected a new trend to evolve since 2011
into the late 2010s.
The U.S. Bureau of Labor Statistics has reported the
estimates of various consumer price indices for October 2013. Figure 2 shows
the predicted trend and the actual difference since 2002. The difference has been
fluctuating around zero between in 2009 and 2011 and then showed a turn to the
predicted trend. Essentially, the zero
difference suggests that the core and headline CPI are practically equal and
evolve at the same monthly rate, i.e. the joint price index of energy and food
has been following the price index of all other good and services (the core
CPI) one-to-one.
Currently, the price index of energy slowly falls
together with oil price. We expect them to fall deeper and thus the headline
CPI to decelerate a bit together with energy. If the core CPI will retain its
current cohesion with the headline CPI, we will have a period of very low
inflation in all goods and services less energy and food.
Figure 1. Two trends in the difference
between the healine and core CPI.
Figure 2. The evolution of the difference between the core
and headline CPI since 2002.
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