It is well known that consumer price indices define price inflation. The same amount of goods and/or services costs more and more (or less during deflationary periods) with time. For example, Figure 1 presents the evolution of the price index of food in the U.S. since 1935, as obtained from the Bureau of Labor Statistics. It is obvious, however, that in an economy growing in real terms the same chunk of food should cost less with time when corrected for price inflation. One can estimate the overall decrease in real price using nominal GDP per capita presented in Figure 2.
Thus, our task is to estimate the real growth in a given consumer price over time and we use the ratio of the price index, P(t), and GDP per capita in current prices, Y(t):
The share of food price in GDP per capita can be presented as a function of real GDP per capita as well as time. Figure 3 shows that there exists a long-term negative trend in Z(t) (notice the log-log scale) without any major deviation – the price food has been decreasing since 1935 in relative terms. The trend looks sustainable and small deviations (like that observed since 2008) seem to be of a transient character. Therefore, one can expect the fall in Z in the near future – food price will be falling against increasing GDP per capita. Figure 4 presents log(NASDAQ:Z) as a function of time. It is likely that the current fluctuation will return to the sustainable trend in a few years.
Figure 1. The consumer price index of motor fuel (not seasonally adjusted).
Figure 2. Nominal GDP per capita
Figure 3. LogZ vs. Real GDP per capita.
Figure 4. LogZ vs. time
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