Looking for the Next Clue About the Direction of Bank Rates?
September 14, 2009
| MoneyRates.com Senior Financial Analyst, CFA
Where are bank rates going next? Whether you've been shopping for money market rates, savings account rates, or CD rates, you've probably been shaking your head over how low bank rates are in general. The question is, can they go any lower?
The next clue may come this Wednesday, with the release of August's Consumer Price Index (CPI) number.
One of the reasons why bank rates have been able to fall so low has been the low inflation--or actually, the deflationary--environment. The deflationary trend may start to get harder to sustain. Inflation increased at a pretty strong clip during the first seven months of 2008--seasonally adjusted, it was on track for an annual gain of 5.8%. That means that inflation only had to increase at a slower rate for the first seven months of 2009 for the year-over-year inflation numbers to start declining. That's exactly what happened, as seasonally-adjusted inflation grew at an annualized rate of 2.4% in the first seven months of 2009.
The year-to-year comparisons get trickier over the rest of this year, however. During the last five months of 2008, the seasonally-adjusted CPI actually declined at an annualized rate of 7.7%. That's an unusually strong deflationary trend. If the CPI doesn't repeat that this year--which is unlikely, given how much lower oil prices are at this point this year, and the fact that the economy is starting to look healthier--you'll start to see year-over-year inflation numbers go up. It seems likely, therefore, that the deflationary trend is about to reverse.
As for the effect on bank rates, this should start to push them upward. If not, depositors will really be in a squeeze, between low rates and rising prices.
