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A sigh of relief: Oil prices take a step back (for now)

November 24, 2010

| MoneyRates.com Senior Financial Analyst, CFA

Between fiscal troubles in Ireland and conflict in Korea, there's been no shortage of bad news to disrupt the financial markets lately. There has been one piece of good news over the past couple weeks, though -- oil prices have taken a significant step back.

This is good news for anyone with money in savings accounts, CDs, or money market accounts. These deposit rates are sensitive to inflation under any circumstances, but at today's ultra-low levels, it wouldn't take much in the way of a rise in prices to put the squeeze on those rates.

The recent rise and fall of oil prices

Oil prices began this month about where they are now -- in the neighborhood of $82 a barrel. In the first two weeks of November, however, oil surged and closed as high as $87.77. It gained nearly 8 percent in less than two weeks, and all of a sudden the talk of $100-a-barrel oil was back.

Oil is not the only component of inflation, of course. However, over the past couple years it has tended to lead the inflationary trend -- both on the way up and on the way down. Oil is also a good measure of the strength of the dollar, and when the dollar is losing ground to oil, it may well be making other goods more expensive too.

This kind of commodity inflation would be the worst possible medicine for the economy now. It would represent rising prices in some areas, while the one type of inflation that could help spur economic growth -- wage inflation -- would remain absent because of a weak job market.

Fortunately, oil prices have taken a step back this week and last, and if you have money in CDs, savings accounts, or money market accounts, you can add that to your list of things to be thankful for tomorrow. As it is, you have to shop actively for the best CD rates, savings rates, and money market rates to stay ahead of inflation. You don't need rising oil prices making the job any tougher.

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