The Skull Kid
Sustainable trends and periodicity in consumer price indices indicate that the era of low energy prices is approaching
Our new paper on CPI and core CPI is now available via MPRA.
Abstract
Five years ago, we found three distinct periods characterized by sustainable quasi-linear trends in the difference between the headline consumer price index (CPI) and the core CPI in the USA. Then we revealed similar behavior in the differences between the CPI and indices of various consumer expenditure categories. We estimated the duration of these trends which varies in a wide range from 8 years to more than 20 years. The transition periods to new trends span shorter intervals of 2 to 5 years. The transition is characterized by a higher level of volatility in the studied CPI differences. In this study, we revisit the revealed trends and transition periods using additional CPI estimates between 2008 and 2012. It is found that our major predictions are right: the headline CPI intersected the core CPI in 2011 and both variables have been evolving in sync since then. The difference between the core CPI and the index of energy has been suffering a transition period since 2008 with extremely high fluctuations. The index of food has been growing relative to the core CPI and did not reach its turning point. The difference between the core CPI and the index of housing passed through its transition period in 2008. When normalized to the CPI, the differences associated with energy and housing demonstrates clear periodicity. The observed trends and periodicity allow predicting the evolution of energy, food, and housing at a horizon of twenty five and more years. The consumer price index of energy may fall in 2013 by ten to twenty per cent from the 2012 level. The periodicity of the related normalized difference implies that this fall may extend into the second half of the 2020s. The housing index will be also falling relative to the core CPI, partly due to its energy related components. It is not excluded that the food price index will be rising another five to ten years. The secular fall in energy and housing prices may induce a lengthy period of very low inflation.
Abstract
Five years ago, we found three distinct periods characterized by sustainable quasi-linear trends in the difference between the headline consumer price index (CPI) and the core CPI in the USA. Then we revealed similar behavior in the differences between the CPI and indices of various consumer expenditure categories. We estimated the duration of these trends which varies in a wide range from 8 years to more than 20 years. The transition periods to new trends span shorter intervals of 2 to 5 years. The transition is characterized by a higher level of volatility in the studied CPI differences. In this study, we revisit the revealed trends and transition periods using additional CPI estimates between 2008 and 2012. It is found that our major predictions are right: the headline CPI intersected the core CPI in 2011 and both variables have been evolving in sync since then. The difference between the core CPI and the index of energy has been suffering a transition period since 2008 with extremely high fluctuations. The index of food has been growing relative to the core CPI and did not reach its turning point. The difference between the core CPI and the index of housing passed through its transition period in 2008. When normalized to the CPI, the differences associated with energy and housing demonstrates clear periodicity. The observed trends and periodicity allow predicting the evolution of energy, food, and housing at a horizon of twenty five and more years. The consumer price index of energy may fall in 2013 by ten to twenty per cent from the 2012 level. The periodicity of the related normalized difference implies that this fall may extend into the second half of the 2020s. The housing index will be also falling relative to the core CPI, partly due to its energy related components. It is not excluded that the food price index will be rising another five to ten years. The secular fall in energy and housing prices may induce a lengthy period of very low inflation.
Green Bean Vegetable Curry
INGREDIENTS:
1/2 cup Peeled Green Beans
1 tbsp Curry Powder
1 tsp Turmeric Powder
Assorted veg - carrot, long beans, brinjal, potato
Coconut Milk
1 Cinnamon stick
3 Shallots*
1 Garlic* (*sliced)
Salt
METHOD:
1. Boil green beans until cooked.
2. Place all ingredients in a pot, except shallots & garlic.
Cook until boiled and veg are soft.
3. Heat up few tbsp oil & stir-fry onion & garlic until golden brown.
Pour oil & onions into the cooked curry.
4. Serve with rice or roti.
**********************************************
Ini lauk yg mudah di sediakan dan kesukaan Along dari kecil dan Along suka makan ni dengan roti canai. Baru2 ni sahabat Along dari KL beri sebungkus, katanya untuk buat inti Kuih Angku. Tapi takpa lah kan sis, Along buat lauk ni jer sebab dah lama tak masak lauk ni. Kalau rajin, belen tu nanti Along buatkan sesuatu lain pula ya. Kacang hijau ni tak da pula terjumpa kat Miri ni.
By: AlongRoz@HomeKreation
BAHAN2:
1/2 cwn Kacang Hijau tak berkulit
1 sb Serbuk Kari
1 st Serbuk Kunyit
Sayuran - karot, kcg pjg, terung, kentang
Santan
1 bth Kulit Kayu Manis
3 ulas Bwg Merah*
1 ulas Bwg putih* (*hiris)
Garam
CARA2:
1. Rebus kacang hijau sehingga empuk.
2. Letakkan kesemua bahan2, kecuali bwg*, ke dlm periuk & masak sehingga mendidih & sayur empuk.
3. Panaska beberapa sudu minyak & goreng hirisan bawang* sehingga garing.
Tuangkan minyak & bwg ke dalam kari sayur.
4. Hidangkan bersama nasi atau roti.
 |
| Green beans |
The Headline And The Core Consumer Price Index
The US economy is likely approaching a period of very low, if not negative, price inflation. Our analysis shows that the consumer price index, CPI, will lag behind the core CPI. Deflation is dark time for investors, as the case of Japan unambiguously demonstrates.
The core CPI is often used as a reliable estimate of inflation trends over longer time horizons. It is a well-known fact that the monthly CPI readings reported by the BLS are highly volatile and may give misleading signals on the long-term trends. Usually the prices of food and energy are excluded from the headline CPI in order to obtain a smoother time series. The food and energy prices are considered as having higher volatilities which are responsible for the largest fluctuations observed in the CPI. Therefore, it is implied that the core CPI just misses a stochastic process with a large standard deviation. However, in the long ran the relative evolution of the core and headline CPI is more informative than a simple stochastic time series.
Figure 1 illustrates the evolution of the measured CPI and core CPI in the USA after 1957. Unfortunately, no estimates of the core CPI are available before 1957. Both indices are for all urban customers and seasonally adjusted. In Figure 1, one can observe that the curves are very close before 1980 - the core CPI practically evolved in sync with the CPI. After 1981, the curves diverge with the core CPI growing faster than the CPI. The gap between the indices widens through 2000, and then the curves start to converge and coalesce in the first quarter of 2011.
Figure 1. The evolution of the headline and core CPI in the USA.
A better view on the periods of the CPI and core CPI divergence and convergence is represented by the difference between these variables, as displayed in Figure 2. The difference is apparently characterized by the presence of three distinct segments of quasi-linear trend and two short transition periods. Between 1960 and 1978, the difference is relatively stable and varies in a narrow range around +1 unit of index. Between 1979 and 1982, the curve falls to -2 and then suddenly changes its direction. From 1982 to 1999, the core CPI is growing consistently faster and a gap of about 10 units is created. The curve between 1982 and 1999 is well approximated by a straight line with small-amplitude deviations; the latter might be associated with measurement noise. The slope of the linear regression line presented in Figure 2 is -0.7 with R2=0.96. In other words, during these eighteen years the headline CPI was growing by 0.7 units of index faster than the core CPI.
There was another period of high volatility between 1999 and 2002 similar to that observed between 1979 and 1982. The gap reached its peak value two times - in 1999 and in 2003. Since 2003, the gap has been closing in line with a faster growing headline CPI, i.e. the food and energy prices had higher rates of growth. Nevertheless, the CPI was consistently below the core CPI, as Figure 1 demonstrates. In 2008, we extrapolated the observed rate of convergence between the CPI and core CPI and estimated the intercept time somewhere between 2009 and 2010 (here we ignore a short term spike in oil prices in 2008). This negative linear trend was also very reliable with R2=0.91. The convergence was faster - approximately 1.6 units of index per year.
When extrapolated the structure of the difference into the future, we suggested that it would be increasing during the next 8 years as a mirror reflection of the trend observed between 2002 and 2008. The projected trend is shown by green line in Figure 2. Since 2008, the actual curve was above and below the green line. Seemingly, we have missed an important feature of the difference which is best seen in a different representation.
Figure 2. The difference between the core and headline CPI.
Figure 3 displays the studied difference normalized to the headline CPI. The pattern is essentially the same as in Figure 2, except the fall in the 1970s, which now has a similar amplitude and duration as the fall between 2003 and 2008. The slope change is almost negligible: from 0.42 in Figure 2 to 0.46 in Figure 3. A striking new feature is the curve self-similarity, which is clear when we shifted the original curve by 30 years ahead (blue line). In other words, the normalized difference is periodic with a period of 30 years. The periodicity suggests a different future, as expressed by a green line with a slope 0.0042. This quasi-linear trend extends into the late 2020s.
In 2012, the normalized curve in Figure 3 returned to the trend. It is highly probable that the rate of CPI growth will fall below that of the core CPI. Equivalently, the joint input of food and energy in the overall price inflation will be declining with time. However, the trajectories of food and energy price evolution are not necessary to be the same.
Figure 3. The evolution of the difference between core and headline CPI normalized to the headline CPI. Blue line represents the original curve shifted by 30 years ahead. The new trend is shown by green line.
If to assume that the evolution of the core and headline CPI is driven by independent stochastic processes like random walks, then the deviation between these indices would be a stochastic process itself. From Figure 3, it is more reasonable to assume, however, that there is a tight link between these variables, which provides the observed repeated shape of the normalized difference. For purely stochastic and independent variables such a periodic behavior is highly unlikely.
There are several simple conclusions from the existence of periods and linear trends in the difference between the CPI and core CPI. Firstly, the consumer prices of food and energy are driven by forces which are independent on those behind other goods and services. Secondly, there are breaks in these forces, when the direction of action reverses. Thirdly, one can extrapolate the evolution of the difference between the CPI and core CPI at a horizon of about twenty five years. Fourthly, there exist relatively short transition periods. These periods are characterized by an elevated volatility.
The core CPI is often used as a reliable estimate of inflation trends over longer time horizons. It is a well-known fact that the monthly CPI readings reported by the BLS are highly volatile and may give misleading signals on the long-term trends. Usually the prices of food and energy are excluded from the headline CPI in order to obtain a smoother time series. The food and energy prices are considered as having higher volatilities which are responsible for the largest fluctuations observed in the CPI. Therefore, it is implied that the core CPI just misses a stochastic process with a large standard deviation. However, in the long ran the relative evolution of the core and headline CPI is more informative than a simple stochastic time series.
Figure 1 illustrates the evolution of the measured CPI and core CPI in the USA after 1957. Unfortunately, no estimates of the core CPI are available before 1957. Both indices are for all urban customers and seasonally adjusted. In Figure 1, one can observe that the curves are very close before 1980 - the core CPI practically evolved in sync with the CPI. After 1981, the curves diverge with the core CPI growing faster than the CPI. The gap between the indices widens through 2000, and then the curves start to converge and coalesce in the first quarter of 2011.
Figure 1. The evolution of the headline and core CPI in the USA.
A better view on the periods of the CPI and core CPI divergence and convergence is represented by the difference between these variables, as displayed in Figure 2. The difference is apparently characterized by the presence of three distinct segments of quasi-linear trend and two short transition periods. Between 1960 and 1978, the difference is relatively stable and varies in a narrow range around +1 unit of index. Between 1979 and 1982, the curve falls to -2 and then suddenly changes its direction. From 1982 to 1999, the core CPI is growing consistently faster and a gap of about 10 units is created. The curve between 1982 and 1999 is well approximated by a straight line with small-amplitude deviations; the latter might be associated with measurement noise. The slope of the linear regression line presented in Figure 2 is -0.7 with R2=0.96. In other words, during these eighteen years the headline CPI was growing by 0.7 units of index faster than the core CPI.
There was another period of high volatility between 1999 and 2002 similar to that observed between 1979 and 1982. The gap reached its peak value two times - in 1999 and in 2003. Since 2003, the gap has been closing in line with a faster growing headline CPI, i.e. the food and energy prices had higher rates of growth. Nevertheless, the CPI was consistently below the core CPI, as Figure 1 demonstrates. In 2008, we extrapolated the observed rate of convergence between the CPI and core CPI and estimated the intercept time somewhere between 2009 and 2010 (here we ignore a short term spike in oil prices in 2008). This negative linear trend was also very reliable with R2=0.91. The convergence was faster - approximately 1.6 units of index per year.
When extrapolated the structure of the difference into the future, we suggested that it would be increasing during the next 8 years as a mirror reflection of the trend observed between 2002 and 2008. The projected trend is shown by green line in Figure 2. Since 2008, the actual curve was above and below the green line. Seemingly, we have missed an important feature of the difference which is best seen in a different representation.
Figure 2. The difference between the core and headline CPI.
Figure 3 displays the studied difference normalized to the headline CPI. The pattern is essentially the same as in Figure 2, except the fall in the 1970s, which now has a similar amplitude and duration as the fall between 2003 and 2008. The slope change is almost negligible: from 0.42 in Figure 2 to 0.46 in Figure 3. A striking new feature is the curve self-similarity, which is clear when we shifted the original curve by 30 years ahead (blue line). In other words, the normalized difference is periodic with a period of 30 years. The periodicity suggests a different future, as expressed by a green line with a slope 0.0042. This quasi-linear trend extends into the late 2020s.
In 2012, the normalized curve in Figure 3 returned to the trend. It is highly probable that the rate of CPI growth will fall below that of the core CPI. Equivalently, the joint input of food and energy in the overall price inflation will be declining with time. However, the trajectories of food and energy price evolution are not necessary to be the same.
Figure 3. The evolution of the difference between core and headline CPI normalized to the headline CPI. Blue line represents the original curve shifted by 30 years ahead. The new trend is shown by green line.
If to assume that the evolution of the core and headline CPI is driven by independent stochastic processes like random walks, then the deviation between these indices would be a stochastic process itself. From Figure 3, it is more reasonable to assume, however, that there is a tight link between these variables, which provides the observed repeated shape of the normalized difference. For purely stochastic and independent variables such a periodic behavior is highly unlikely.
There are several simple conclusions from the existence of periods and linear trends in the difference between the CPI and core CPI. Firstly, the consumer prices of food and energy are driven by forces which are independent on those behind other goods and services. Secondly, there are breaks in these forces, when the direction of action reverses. Thirdly, one can extrapolate the evolution of the difference between the CPI and core CPI at a horizon of about twenty five years. Fourthly, there exist relatively short transition periods. These periods are characterized by an elevated volatility.
Durian Ukak Fritters (Durian Ukak Goreng)
The flesh is firmer than typical durian, so I imagined that it must be nice if I deep fry it. I was absolutely right.... it turned out to be so delicious that Liana ate 3 pieces! She hardly ate anything much after recovering from the recent fever and am delighted to see her enjoying it. Ukak is known as non-heaty, not like the typical durian so I'm sure it is ok to feed Liana with it.
Read more about durian Ukak in my previous entry here. The obvious distinction from the typical durian is its vivid color (however this one is lighter), much smaller size (about a human palm size), hair around its stem, soft thorns, firmer flesh and less stenchy. One may mistaken this from Durian Isu that I shared earlier here due to similar size and vivid aorange color but you can tell from the shape of the thornes - they taste very different too which I don't know how to describe it.
Hari tu kata tak nak tayang menu durian dah, kan dah berderet2 menu durian... hehe tak boleh tahan godaan durian ni lah.... ni lepas geram sebab tahun lepas Miri takda durian sangat tapi tahun ni mmg berlambak2 & harga pun murah. Along beli Durian Ukak ni cuma RM10 untuk 7 biji.
Sebelum ni dah ada Along tayang Durian Ukak kat sini. Durian Ukak ni tak sama dengan Durian Isu yg Along tayangkan baru2 ni kat sini. Rasa nya amat berbeda walaupun isi nya sama berwarna jingga terang. Ukak ni berbulu di tangkai nya, isi nya lebih pejal dari durian biasa, bersaiz kecil sebesar tapak tangan jer dan bau nya tak kuat sangat. Along memang suka makan Ukak di bandingkan dengan Isu.
Along saja jer cuba nak goreng sebab banyak Ukak yg Along beli tu tak abis makan begitu sahaja. Along bayangkan isi nya yg pejal tu tentu sedap jika di goreng - memang tepat sekali bayangan tu.... isi yg digoreng tu rangup di luar & kenyal2 di dalam. Anak2 & hubby kata sedap.... Liana pun makan sampai 3 ketul. Durian Ukak ni tak panas badan jika di makan banyak, jadi takda masalah kasi bebudak makan.
Untuk resipi:
Celupkan ulas durian (dgn biji nya sekali) ke dalam tepung gorengan & goreng dgn minyak dalam sehingga tepung nya rangup. Boleh guna resepi apa2 pun utk tepung gorengan tapi Along suka resipi HaSue yg Along dah buat banyak kali - boleh rujuk di sini.
Marble Cheesecake
