Like the villain in one of Hollywood’s franchise horror movies, inflation has returned. You knew all along it couldn’t really be dead.
For eight consecutive months, and ten of the last eleven months, the year-over-year change in the Consumer Price Index was actually negative. This meant negative inflation, or deflation — a very rare state of affairs. Nobody was really celebrating, because this was a symptom of profound economic weakness, but it was at least a silver lining to depositors who were having to make do with microscopic bank rates. In fact, at some points during the past year, when deflation was factored in, those bank rates actually represented a fairly attractive increase in purchasing power on deposits.
This is no longer the case. The Bureau of Labor Statistics has reported a 1.9% increase in inflation for the twelve months ending November 30, 2009. Inflation is officially back. Again, it shouldn’t be much of a surprise. Not only is moderate inflation a normal state of affairs, but the trailing year-over-year inflation numbers have been skewed heavily downward by a steep bout of deflation in late 2008. The last negative month for inflation was actually March of 2009.
A 1.9% inflation rate certainly puts bank rates in a less attractive light. As of today, the average savings account rate was 1.22%, the average money market rate was 1.15%, and the average 1-year CD rate was 1.51% — all lower than the prevailing inflation rate. Using Money-Rates.com to shop for a better rate has never been more crucial. As things stand now, settling for an average rate is unacceptable, and sticking with a below-average rate is unthinkable.
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