Food price: US and worldwide

In 2007, we predicted the linear trend in the difference between core CPI and the price index of food. Is it correct?

In June 2009, we revisited our early prediction of the linear trend in the difference between the core CPI and the consumer price index of food. Originally, in 2007, we predicted the evolution of several consumer price indices relative to core CPI in the USA [1]. Therefore, we have now more than 30 months to compare the prediction and actual estimates. The years of 2008 and 2009 were characterized by high volatility in the behaviour of all expenditure subcategories: energy, food, housing, etc. We are going to revise our prediction. In [1] we wrote:

“Figure 7 displays the difference between the core CPI and the index for food for the period after 1960. This curve differs from that in Figure 5. The first large change in the difference occurred in 1973 (not in 1979 as for energy) and lasted only 7 years. Around 1980, the difference started to grow from -7.0 to 13.0 in 1996. Between 1996 and 2003, the difference was effectively constant at the level of ~13.5 units of price index, i.e. a lengthy flat segment was observed. After 2003, the difference has been decreasing at a rate of 1.2 units per year, as Figure 8 demonstrates.


Overall, the difference between the core CPI and the food index was always lower than that between the energy index and the core CPI. The largest difference was only around 14 units. Since 2003, the food price index has been slowly catching up the core CPI. Extrapolating the current linear trend one can estimate the intercept point when the food price index will reach the core CPI. According to Figure 8, this will happen in 2014. Such behaviour differs from that observed for the energy index in terms of timing and amplitude, but the overall behaviour distinguishing periods of linear growth and bifurcation is very similar. Therefore, principal mechanisms behind the evolution of the food price index are similar to those behind the energy index. They are likely not related to the changes in supply pressure induced by good crops and draughts. These mechanisms have to be a part of economic system itself and should be related to relationships between economic agent not to production of goods and services. (more)