Cheap money

COEUR d'ALENE - Times may be tough, but money is cheap. With interest rates remaining at record low levels, and expected to stay that way into 2012, consumers have one of their best opportunities in some time to buy a car or refinance a mortgage, thanks in part to super-low inflation.

"European investors are moving into bonds," said Katie Marcus, residential loan sales manager for Mountain West Bank. "When stocks are bad, everybody goes into bonds."

That means interest rates on conventional and FHA mortgages around 4.5 percent, at least for those with good credit numbers or other financial leveraging, such as a larger down payment or cash on hand.

There is a downside for those who put their money into saving or bonds.

"They are not making any money," Marcus said. "But at least they are safe."

Consumer inflation has all but disappeared, the government reported Wednesday. The Federal Reserve may now be emboldened to keep interest rates at record lows well into next year - and possibly into 2012.

As a result, banks' prime lending rate will stay at its lowest point in decades. That figure is used to peg rates on credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans. Rates on fixed-rate mortgages remain low, too, thanks to a growing belief that the Fed will further delay any rate hike.

So what do persistent low inflation and record-low rates mean for consumers?

• The time is right to buy a car. New-car prices were flat in April. And they've fallen 1 percent over the past 12 months. Big banks are offering super-low rates in the 3 percent to 4 percent range, says Greg McBride, senior financial analyst at Bankrate.com. Normally, such rates are available only to companies, not individuals, McBride says.

• For homeowners who qualify, it's a good time to refinance. The average rate on a 30-year fixed rate mortgage dipped this week to the lowest rate of the year - 4.84 percent, down from 4.93 percent a week earlier. Homeowners who took out adjustable-rate loans at 4.5 percent in 2005 are now seeing their rates fall to 3 percent to 3.25 percent, McBride says. As a result, they have extra cash to spend.

• People planning to drive to a vacation getaway won't pay as much. Gasoline prices fell sharply in April - 2.4 percent. Analysts expect further declines this summer because crude oil prices have fallen nearly 20 percent since April.

• Shoppers who want to update their summer wardrobes, and those hankering for cakes and cookies, are in luck. Prices for clothing and baked goods dropped in April and are down sharply over the past year. Soaring prices for cotton and other fibers make it likely that clothing prices will rise in the next year.

Buyers of new cars can expect to see rates less than 4 percent, said Jim Addis at the Tom Addis Lake City Ford.

"The Fed is doing a good job of keeping rates down," he said.

With help from the factory, rates can go as low as zero percent, and credit unions will finance new or used cars for as little as 3.74 percent right now.

"That really helps," Addis said.

Yet for savers, the prospect of persistent record-low rates is bad news. It means no relief from puny returns any time soon. The average yield on a one-year certificate of deposit has sunk to 0.7 percent, according to Bankrate.com. That's the lowest since Bankrate starting tracking the figure in 1983. Rates hovered as high as 5.5 percent around 2000, according to Bankrate.

Unlike everyone else, savers won't benefit until the Fed starts boosting interest rates. Yet prospects for the Fed to start pushing up rates in the fourth quarter of the year seem to be fading. More economists now think an increase won't happen until next year at the earliest.

What's keeping inflation so low that the Fed can hold rates down without fear of igniting prices?

Lots of slack in the economy: Factories and other businesses are operating well below full throttle. Workers are getting meager raises, or none at all. And companies are wary of jacking up prices because many consumers aren't spending freely - and they have no plans to.