12/25/16

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. 

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