This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Inflation Signals Relax But Not Enough For Depositors

Recent weeks have been a worst-of-both-worlds scenario for savings accounts and other deposits, as stalled economic momentum weakened the prospect for rising interest rates, while a flare-up of inflation accelerated the loss of purchasing power in these accounts. But could conditions now be improving on at least one of those fronts?

A break from inflationary pressures

Concerns about inflation were calmed somewhat by the August 14 release of the Producer Price Index (PPI). In this report, the Bureau of Labor Statistics announced that the PPI was unchanged for the month of July, and had increased by 2.1 percent over the past 12 months. These numbers represent an easing of producer inflation compared to June's figures, when the PPI was up 0.8 percent for the month, and 2.5 percent for the past year.

Consumers are directly affected by retail prices, as reflected in the Consumer Price Index (CPI). However, producer prices can give some insight into the future direction of consumer prices. Companies tend to shelter consumers from short-term price changes for competitive and demand reasons, which is why the PPI can be more erratic from month-to-month than the CPI. In the end though, any sustained trends in producer prices will be reflected to some degree in consumer prices, as companies have to protect their profit margins.

For this reason, July's lack of change in the PPI is a welcome reversal of a trend that had seen producer prices rise sharply in both May and June.

Gasoline levels off

Significantly, easing energy costs were one reason that producer prices leveled off in July. Recent months have seen an increase in oil and gas prices that propelled a rise in overall consumer prices. Retail gas prices continued to rise in July, and this may well impact the CPI number for that month. Thinking longer-term though, it is encouraging to see producer energy costs easing, as these costs ultimately affect consumer prices in just about every sector.

Another good sign for the future is that retail gasoline prices actually slipped a little in the first two weeks of August. Gasoline prices rose sharply earlier this year and created some inflationary pressure, but now they are actually below where they were a year ago.

Implications for savings accounts

CD, savings and money market rates would benefit from two things: an improving economy and low inflation. An improving economy would improve the investment and lending outlook to the point where banks would feel a stronger incentive to attract deposits by offering higher interest rates. Until this happens, it is especially important for inflation to stay in check.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.02 0.00%
FB $104.07 0.00%
GOOG $683.57 0.00%
TSLA $162.60 0.00%
YHOO $27.97 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs