Low Inflation Is Better For Buyers and Borrowers
These are times to buy a car or refinance a mortgage due to very low inflation and interest rates.
Aside from keeping an emergency fund, it's really not a good time to invest in a savings account.
According to the federal government, inflation has is at an all-time low. The Federal Reserve may keep interest rates at record lows well into next year — and possibly into 2012. This means that banks' prime lending rate will stay at very low levels, too. Rate hikes on credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans are therefore, also likely to remain at a minimum.
So what do these mean for you the consumer?
1. If you're thinking of buying a new car, this is the best time to do it. Brand new car prices were flat in April. And they have kept falling over the past 12 months. Big banks are extending rates of three to four percent mot only to companies, but also to individual buyers.
2. It's also a good time to refinance the home mortgage. The average rate on a 30-year fixed rate mortgage is down to 4.84 percent for the year. If you took out an adjustable-rate loans at 4.5 percent in 2005 that should be at about 3 percent to 3.25 percent, which means there's extra cash to spend.
3. Want to go on a vacation getaway? Gasoline prices fell 2.4 percent in April. Further declines are seen this summer because due to oil prices falling by as much as 20 percent.
4. Buy new clothes and spend a bit on baked goods. Prices for these items dropped in April and are down sharply over the past year. However, prices are on the rise for cotton and other fibers so it's possible clothing prices will go up next year.
Why is inflation so low right now?
An economic slack: Factories and other businesses are not going at producing full steam. Salary increases for employees are too low or even close to zero. So companies are being too careful about increasing prices. Consumers are just not ready to spend their money yet.