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.