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Savers feel the heat from rising oil prices

February 21, 2013

| MoneyRates.com Senior Financial Analyst, CFA

The disappearance of inflation in the fourth quarter of 2012 helped make the low level of rates on savings accounts and other deposits more bearable. Unfortunately, a surge by oil and gasoline prices in recent weeks threatens to end that inflation holiday.

According to the U.S. Energy Information Administration (EIA), crude oil prices began rising just before New Year's Day, and the trend continued in the first weeks of 2013. As of mid-February, crude oil prices were up by 6 percent already in 2013. That's a significant rise, but it is nothing compared to the jump in retail gasoline prices lately.

According to the EIA, retail gasoline prices nationally were up by 13.1 percent in the first seven weeks of 2013. Worse, the pace of increase has increased in recent weeks. While crude oil prices are a key driver of retail gasoline prices, the latter are also affected by refining output, and a squeeze in refining capacity may be what's driving gas prices up faster than the rise in oil prices.

The recent rise has pushed the average retail gasoline price in the U.S. from $3.37 to $3.81 a gallon already this year. Four times previously -- in 2008, 2011 and twice last year -- retail gasoline prices peaked at around $4 a gallon. It looks as though gas prices may be heading for that same destination once again.

The impact on inflation

Last summer, a rise in oil prices sparked a flare-up of inflation during August and September. The Consumer Price Index (CPI) rose by 0.5 percent in each of those two months, a rate that would push inflation north of 6 percent a year if it continued. It was only when oil prices eased that inflation eased. The CPI was essentially flat during the fourth quarter.

Oil and gasoline prices have a very significant impact on inflation. Not only are they important components of consumer prices in their own right, but they also impact the prices of most other goods and services because they are involved in the production and delivery of so many things. That's why the key to what 2013 holds for inflation may be whether this recent surge in oil and gas prices continues.

Changing the perspective on interest rates

When even the best savings accounts, CDs and money market accounts are offering only about 1 percent annually in interest, it can be hard for people to get motivated to shop for rates. However, if inflation starts to rise again, it may put things in a different perspective. While the best rates are around 1 percent, the average rates on savings accounts are much closer to zero. As inflation makes a comeback, finding the best CD, savings and money market rates can make the difference between staying even with rising prices a little longer, or starting to lose ground almost immediately.

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