We
found sustainable linear trends in the difference between the headline and core
CPI in 2007. We also were the first to suggest
that the trend between 2002 and 2008 to be reversed to the opposite after an
extended period of strong fluctuations. These findings are currently validated
by five years of observations – the studied difference is on a sustainable linear
trend since 2011. When extended into the second part of the 2010s, this trend
implies that the joint consumer price of food and energy will be falling
against other consumer goods and services in the headline CPI.
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 December 2013. Figure 2 shows the predicted trend and the
actual difference since 2002. The studied difference has been fluctuating
around the zero line between in 2009 and 2011 and then showed a turn to the early
predicted trend (Figure 3). 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.
Figure 3. The evolution of the difference between the core
and headline CPI since 2010.
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