Face it -- the
fiscal cliff
is the 800-pound gorilla in the room right now in terms of economic
news. People are so afraid of it that it seems to have everyone's
full attention.
But as important as these budget negotiations are, there are
still other economic developments worthy of monitoring. Sometimes
these even yield good news, as with the case of the recent trend in
oil prices.
Oil prices and inflation
Oil prices are like a person with a bad reputation -- nobody
talks about them much when they are behaving, but when they flare
up they become one of the top economic concerns.
Oil prices have made headlines in a negative way twice this
year. They surged above $100 a barrel in the early weeks of 2012,
sparking fears of the type of sustained run in oil prices that
helped slow the economy in 2008. Then, after subsiding from those
high levels, oil prices jumped by about 20 percent in just eight
weeks this summer.
That summer spurt in oil prices sparked a resurgence of
inflation in August and September. Oil prices play an especially
important role in inflation. Not only are oil and gasoline
important components of the Consumer Price Index themselves, but
because so many other aspects of the economy depend on oil and gas
for their manufacture and transportation, any sustained rise in
fuel costs can soon spill over into other goods and services.
For now though, the inflation threat from oil prices seems to
have subsided. The past several weeks have seen oil prices ease
from the high $90s to the mid $80s. For all the ups and downs oil
prices have had this year, by early November they were about $10 a
barrel below where they started 2012. That's the type of trend in
oil prices that is very conducive to low inflation.
The effect on savings accounts
A low-inflation environment is vital to savings accounts,
because they have so little breathing room. Average savings account
rates are near zero, but rates can be found that are closer to 1
percent. If inflation stays flat, deposits in those accounts can
make a little money. However, if inflation flares up even a little,
the
purchasing power of savings accounts
starts to decline.
Add all this up, and you can see why people with savings
accounts and other deposits might want to keep a wary eye on oil
prices. A flat-to-negative price trend for oil is critical to those
accounts staying ahead of inflation.
Waiting for the cliff
Of course, what depositors really want is for bank rates to
rise. In large measure, that comes back to the fiscal cliff. A
constructive solution to that problem may well be the best chance
for generating the type of sustainable growth that could lead to
higher rates
in 2013.