federal reserve

Inflation checkup and upcoming windfalls

Saturday Jan. 16, 2010
Posted 8 a.m. Eastern

Inflation check: The December Consumer Price Index, or CPI, was released yesterday, meaning we can now put a tally on inflation for all of 2009. Drum roll, please. The 2009 increase in the Consumer Price Index was 2.8 percent, seasonally adjusted.

Oh, the chorus of economists and Federal Open Market Committee, or FOMC, members will say how inflation is "subdued" or "muted" and that this number is heavily influenced by the rise in oil prices over the past 12 months. This is where the core reading that excludes food and energy comes in handy. The core CPI increased 1.8 percent in 2009.

Neither the headline nor the core reading is deflationary and both are bumping up against the upper boundary of the Fed Reserve's very own desired range of inflation. It wouldn't take much in the way of price increases to put the Fed behind the curve -- again. And that's exactly what we should all be concerned about.

Upcoming windfalls: Many homeowners in markets where home prices have tumbled are getting an unexpected -- albeit modest -- windfall with the arrival of an escrow surplus check from their mortgage servicers.

This is the time of year when mortgage servicers conduct an analysis of your escrow account, looking at how much is escrowed with each mortgage payment and how that compares to your expected outlays for property taxes, property insurance, and private mortgage insurance in the coming year.

If the account comes up short of its allowable threshold, the notice informs you that you can pay the difference in a lump sum now or via a higher monthly payment the rest of the year. If the account has an excess, as is prone to happen in areas where falling home values have pushed your tax bill down, you'll find a nice check inside. Before you head to the mall, consider using that windfall to jump-start your emergency savings or pay down high interest rate debt.

An even bigger windfall awaits once tax refunds begin to arrive in the coming months. Last year, more than 96 million tax refunds were issued to individual households, at an average of nearly $2,700. Now that's something that can make a dent in your debt or add some cushion to depleted savings. If you're in line to receive a refund, give yourself a pay raise by adjusting your paycheck withholding. This way you'll get some extra money with every paycheck instead of loaning it to Uncle Sam all year long interest free.

For more tips on what you can do with either of these windfalls, read the Bankrate feature "10 smart money-saving tips for 2010."

Here is one thing not to do: Fritter it away.

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