Submitted by Ivan Kitov, Jun 22, 2007 04:19

CPI and core CPI (both all urban and seasonally adjusted) in the USA were very close (practically evolved in sync with CPI slightly in lead) between 1957 and 1986. Between 1981 and 1999, the core CPI was growing consistently faster and a gap of about 10 units between these two indices was created in 1999. This gap has been closing by a faster growing CPI since 2003, but the CPI index is below that of the core CPI. If to extrapolate current rate of convergence between the CPI and core CPI, one can estimate the intercept time somewhere between 2009 and 2010. The convergence trend is very robust, as was the divergence trend between 1981 and 1999, but the convergence goes faster. Therefore, one can expect that price for food and energy will grow faster than that for the items in the core CPI. (Likely, a good investment idea at this time horizon.)

What will be further in time, beyond 2012? It is likely that the CPI will "overshoot" the core CPI and will be growing further and further above the core CPI. On the other hand, GDP deflator and CPI will drop below zero level after 2012. This means that the core CPI will be decreasing even faster than CPI and might reach negative zone earlier than in 2012. The Feds should be very happy with that.

So, the next five years are not good for those who have personal income I lower half (or even more) of personal income distribution in the USA, since their expenditures are mainly for food and gas. They will spend a progressively larger part of their income for food and energy.

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