The fall in energy and food prices will be long and deep

last time I posted on the difference between the headline and core CPI in 2013. There is a good reason to touch upon slow economic processes regularly but not often. Our concept of cyclic evolution was formulated in 2007 and its updated version was posted many times in this blog in the form of normalized difference (cCPI-CPI)/CPI. Essentially, the concept says that the future trajectory has to repeat the path observed thirty years ago, i.e. the cycle has a 30 years period. Figure 1 presents the state of the difference as observed at the end of 2013 (dotted red line) and the predicted trajectory (blue dotted line), which is the current curve shifted by 30 years ahead. Figure 2 presents the current state and proves our hypothesis.

We have been routinely reporting on the difference between the headline and core CPI since 2008 and predicted the era of low energy+food prices (core CPI is the headline CPI less food and energy) since 2014 and for the following 20 years. So far, it is a good prediction fitting our concept since 2007. For energy companies, Figure 2 implies that oil/energy prices will be on a negative trend until 2030. We are just in the middle of the fall, which is supposed to be dramatic in the next two to four years. Fasten your belts.

Figure 1. The difference between core (cCPI) and headline (CPI) CPI normalized to CPI. The period of cycle is 30 years and dotted  blue line presents the future of the normalized difference before 2044.

Figure 2. The current state of our prediction. Red line follows up the blue line.