Food will be getting cheaper during the next decade

We did not report on the difference between the core consumer price index (cCPI) and the index for food (less beverages) since 2013, when we reported the overall fall in food price in the USA. This update is a bit late considering our promise to update at an annual rate, but the current trend in the discussed difference is so strong and indicative that we could not miss the opportunity to praise the success of our 8-year-old prediction.

So we continue reporting on and predicting the evolution of the difference between the core consumer price index (cCPI) and the index for food (less beverages).  Previously, we confirmed in many posts (see this blog) and papers [1, 2] that this difference had been following a long-term negative and linear (time) trend since 2001.  Originally, we predicted a turn to a positive trend in 2014. Five years ago, we expected the turn to a positive trend in 2012. In Figure 1, one can observe that the turn actually occurred in November 2014 and the current trend is positive – the price index of food grows at a lower rate than that of the core CPI.

For an investor dealing with commodities, the index of food, which is growing at a rate lower than the core CPI, is an important reference for any action. Food price affects not only economic but also social and political processes.

Figure 1 depict the most recent period. In 2008, when we first addressed the issue of sustainable trends in CPIs, the trend line was much steeper than now and intersected the zero line in 2014.  This was our initial estimate of the turning point for the negative trend. The zero line was considered as a natural level of reflection.  In the beginning of 2009, the difference reached the bottom and turned to a positive one, although not for long. The growth in food prices restarted in 2010. In the end of 2011, the difference had a short stop which we likely misinterpreted as a manifestation of the transition to a positive trend. Since October 2011, the difference has not been changing much with just a slight positive trend. In 2014, the studied difference began to grow and will likely grow another decade.

Food is getting cheaper in relative terms.

Figure 1. The difference between the core CPI and the price index of food since 2002. 

Oil price will not grow during the next 15 years

In 2008, we published a paper on the presence of long-term sustainable trends in the differences between various components of the CPI in the USA. We started with the difference between the core CPI (i.e. CPI less food and energy) and the overall CPI. Two Figures below are borrowed from the paper:

Figure 1. Linear regression of the difference between the core CPI and CPI for the period from 1981 to 1999.  The goodness-of-fit is 0.96, and the slope is 0.67.

Figure 2. Linear regression of the difference between the core CPI and CPI after 2002.  The goodness-of-fit is 0.86, and the tangent is -1.57.  An elevated volatility has been observed from 2005.

In this eight-year-old paper as well as in later papers on the sustainable trends in the CPI and PPI (see here), we suggested that the negative trend shown in Figure 2 should reach some bottom point and then turn to a positive trend. It was also mentioned that such processes in the past had been accompanied by an elevated volatility in the difference, i.e. high amplitude fluctuations.

Eight years later, we are happy to state that our predictions were accurate - the trend now positive and is likely approaching the mid-point of the linear segment. Since the very beginning, we have been reporting on the evolution of the difference between the headline CPI and core CPI many times.

Our concept of cyclic evolution was formulated in 2007. Essentially, this 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 3 presents the state of the CPI difference normalized to the headline CPI as observed since the late 1950s (dotted red line) and the predicted trajectory (blue dotted line), which is the current curve shifted by 30 years ahead. Figure 4 presents corresponding linear trends with all volatile periods removed.

We can say that eight years ago we successfully 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. For energy companies, Figure 4 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. All measured taken by oil-producing countries are worthless  -

 actual economic forces are beyond simple control. 

Figure 3. 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 4. The current state of our prediction. Red line follows up the blue line.

Tahiti hemisphere

The International monitoring system of the CTBTO includes seismic station PPT, which is situated near Papeete, Tahiti. This station is a rather isolated one. Working with its data at an everyday basis I could not imagine  how beautiful is the Earth for a space traveler flying directly to PPT. Google Earth gave me a striking view on the Papeete hemisphere.

  

Clinton’s epic failure is an economic problem started during G.W. Bush presidency

The latter events in the USA and other countries demonstrate that interaction between inhomogeneous and dynamic society and frozen and irresponsible establishment is not ideological or sacral. It is rather economic. No pure idea or even patriotic war can defend real economic loss for a bigger part of population.  People do perceive growing economic disparity, which is aslo seen in dry digits of economic reports. Here, I present one figure with two curves showing the degree of dramatic loss in the portion of personal income received by working people in the lower income range. First curve shows the portion of population (age 16 and above) with income as reported by the US Census Bureau and measured in the (March) Current Population Surveys (CPS). One can observe a longer period of healthy growth from the 1950s to the 1980s, mostly due to increasing female involvement.  The portion of economically active population reached approximately 92% in 1980 and then did not change over 20 years. In 2001, a gradual decline started and that trend has been observed ever since. Therefore, the portion of people without any reportable personal income has been increasing and these people cannot fall below the zero income line.  They have nothing to lose. This fall in the portion of people without personal income is not directly related to actions of any specific authority. It is a result of secular oscillation or Kondratiev wave, as described in one of my previous posts. 

Second curve is more illustrative. The portion of CPS income in the GDP (or Gross Domestic Income – GDI = GDP) reached 68.4% in 1980. More important is that it does not show strong dependence on the growing portion of people with income before 1980. Data before 1967 are absent and we cannot make a better quantitative comparison between the portion of people with income and their share in the GDP for the whole period between 1950 and 1980. Between 1980 and 2000, the portion of income was on a gradual decline down to 64.5%, or by 4 % per 20 years. Since 2000, lets call is the Bush era, the portion of CPS income, which is mostly wages and salaries of employed people, has been falling very fast and reached 55%  (!) in 2009. In 2015, the portion of population with income was 55%, i.e. it returned to the worst year of the economic depression after a short recovery.

Considering the overall fall in personal income for a bigger portion of population with smallest incomes one can mark a link between the epic failure of Clinton in the past presidential elections and the overall perception of economic disparity which contradicts the overall rhetoric of the American establishment. Then somebody speaks in the media about potential economic loss poor people are happy with such a perspective because they have less to lose and the level of economic disparity may decrease when the rich and richest really lose their money. From the point of view of economic inequality, the Clinton’s failure might be perceived as deserved for the supportive establishment, and thus, positive. The current establishment has failed to understand real social and economic processes and has to be removed together with its logistic support like think tanks, economic and social departments, and the mass media. They demonstrate linear thinking (tomorrow as today) and broad absence in understanding of actual processes.  

I have compared the list of states for Clinton and the list of riches states in terms of average income per capita. They coincide by more than 80%. This does not prove the link between falling personal income and the degradation of the current establishment. But it is indicative.

Brexit likely had the same economic root. Other developed countries have to be aware of potential problems related to the side effect of Kondratiev wave and the growing income inequality. We are close to the middle of negative period in economic activity and the hardest time is likely five to ten years ahead of us.

Remote monitoring of weak aftershock activity with waveform cross correlation: the case of the DPRK September 9, 2016 underground test

Full text is available on arxiv.org - https://arxiv.org/abs/1611.03055

Abstract

The method of waveform cross correlation (WCC) allows remote monitoring of weak seismic activity induced by underground tests. This type of monitoring is considered as a principal task of on-site inspection under the Comprehensive nuclear-test-ban treaty. On September 11, 2016, a seismic event with body wave magnitude 2.1 was found in automatic processing near the epicenter of the underground explosion conducted by the DPRK on September 9, 2016. This event occurred approximately two days after the test. Using the WCC method, two array stations of the International Monitoring System (IMS), USRK and KSRS, detected Pn-wave arrivals, which were associated with a unique event. Standard automatic processing at the International Data Centre (IDC) did not create an event hypothesis, but in the following interactive processing based on WCC detections, an IDC analyst was able to create a two-station event . Location and other characteristics of this small seismic source indicate that it is likely an aftershock of the preceding explosion. Building on the success of automatic detection and phase association, we carried out an extended analysis, which included later phases and closest non-IMS stations. The final cross correlation solution uses four stations, including MDJ (China) and SEHB (Republic of Korea), with the epicenter approximately 2 km to north-west from the epicenter of the Sept. 9 test. We also located the aftershock epicenter by standard IDC program LocSAT using the arrival times obtained by cross correlation. The distance between the DPRK and LocSAT aftershock epicenters is 25.5 km, i.e. by an order of magnitude larger than that obtained by the WCC relative location method.