The shopper’s wallet is hit by inflation as the prices jump up. At the same time, stores are left with empty shelves due to supply chain issues and product shortages. What does it mean for consumers? How does inflation impact the file and money?

The US government has a large amount of debt and that means that we're going to be paying higher taxes and probably higher inflation at the same time. However, you look at it, it's painful. If they can raise prices, they will raise prices…

In this video interview, James J. Angel, a Finance Professor at Georgetown University, talks about inflation and its effects on consumers’ life. Watch more to learn why businesses raise prices and what you can do to protect your savings.

What Is the Current Economic Situation in the US?

Michael: The government printed money that put a lot of extra money into people's pockets. Then we see a problem with logistics. Goods are not on the shelves. So you have both supply and demand inflation at the same time happening. Tell us what do you see? How do you see the situation being addressed, resolved? What would happen?

Prof. Angel: Well, inflation is real and it is here. You don't need government statistics to tell you what is happening at the supermarket, at the gas pump, or everywhere you look. This is being driven by both supply and demand at the same time. So we see supply chain shortages ranging from everything from chip shortages from Taiwan, to bottlenecks at the ports, and we're also seeing a labor shortage. You put all that together and that is constraining supply. That's going to push the price up.

At the same time, we also have as a result of the government activities to fight the pandemic and support the economy, too much stimulus was dumped on the economy too quickly. With too many dollars chasing too few goods that push prices up. 

So when the stimulus checks came raining down upon us, it wasn't free money. It was a loan from the government and we're going to pay for it through higher inflation and higher taxes.

Michael: What is the current inflation rate?

Prof. Angel: Statistics this morning say it's approximately 9%. Now there are a lot of different ways to measure it, depending on what kind of a basket you look at. But however you cut it, it's the highest rate in 39 years.

Michael: 9% annual, I assume?

Prof. Angel: It depends on whether you take last month's rate and compound it to a year, it's close to 9%. Or whether you just look over the last 12 months, but however you look at it, it's painful.

What Categories Are Hit the Most by Inflation?

Michael: Is it all across the economy or is it any particular sectors that got hit by inflation?

Prof. Angel: Well, some sectors are hit worse than others. So for example, automobiles are up 11% over the last year. Now part of that is due to the chip shortage. The automakers can't get enough chips for their cars, so they only build the most expensive cars and use the chips there. 

So we're seeing differences in the types of cars being sold, but if you want to buy a new car, it's going to cost you. 

We see that for a while there in the pandemic, nobody was going anywhere, but suddenly we're emerging from our holes in the ground and people want to move around. People want to buy cars, and they haven't been making them. That means prices of new and used cars have been going up.

What Are the Effects of Inflation on Consumers?

Michael: I have $10 in the bank. That $10 today will cost less, much less tomorrow. What do I do with $10? Saving account pays nothing. Where do I go with that money?

Prof. Angel: Well, that is a really good question and a lot depends on what your goals are, what your opportunities are. Now, inflation may be painful depending on how you measure it between five and 10%, but if you're paying 20% interest on your credit cards, the first thing to do is to get rid of the credit card debt. That's the highest return investment you can make.

Now okay, beyond that, beyond paying down debt, the other things you can do is you can invest in things that have lasting value. Now I'm biased. I'm a professor. Yeah, I believe in education. So I would say…

 …educate yourself, whether it's buying a book to read or taking a course somewhere, that builds your human capital. That's something that inflation won't take away.

Now, whereas how to protect your purchasing power, there's no easy answer to that. Hard assets that don't go away or one place to store your purchasing power, but prices of things like gold and real estate, they do fluctuate. As we learned in the great recession, real estate prices can go down. 

Gold also fluctuates quite a bit. I don't recommend speculative toys like Bitcoin because its price is so volatile, nobody really knows what it's worth. I would say the thing to do is to shop carefully and when you see a good price on something, use the $10 to stock up.

How Does Inflation Impact Quality of Products? 

Michael: Do you expect companies to try to cut corners to preserve the price to the old level on their products? Shall we expect companies producing less quality products?

Prof. Angel: Absolutely. I mean, these cost pressures are hitting businesses and they're going to look for every possible way of responding. So for example there's always the incredible shrinking candy bar as the candy bar sizes shrink. So we'll see smaller sizes at the supermarket while they try to maintain certain price points. We'll see attempts to substitute cheaper ingredients in various products. We're going to see price increases and we're going to see fewer sales. 

A lot of businesses will have high, low pricing where you have a high price most of the time, but then you have a sale price to get rid of excess inventory. Then the price goes back to the normal level. Well, we'll see fewer of those sales as a result.

How Does Inflation Affect Supply Chain?

Michael: We've learned in economics that keeping large inventories is always problematic at the time of the recession, which brings you to the recession. So US economy has been rebuilding itself in such a way that we don't keep inventories. 

Do you think it's going to change the way markets operate? Do you think that logistic inventories will still come into play in the US big time next year?

Prof. Angel: I think smart people learn from experience. I think the experience is that when times get tough, having an inventory can have some value. I think we're going to learn a lot of lessons from the current situation. For one thing, the dependence on imports really shows how thin our supply lines are and how dependent we are on them.

So I think a lot of businesses are going to rethink their supply chain and do more near-shoring. That is instead of buying goods from Asia, maybe from Latin America. Or even better yet, the United States because they'll realize that there's a cost to importing stuff from far across an ocean that doesn't always show up in the quoted price. So I think we're going to see a rethinking of inventory to make sure that those supply chain issues don't disrupt operations.

Why Do Prices on Services Increase?

Michael: Some of our consumers on the website are asking the following questions. Why would Spectrum, which is a cable company, increase the prices? Everything is already produced. You don't have to deliver anything. Why is the service increasing prices?

Prof. Angel: Because they can. There's so much demand in the economy, so many dollars running around. They're going, "Wow, we can raise the price and people still buy the product." So if they can raise prices, they will raise prices. My guess is they will also point out that they hire a lot of people, that they like most businesses are probably having trouble hiring people. So they have to pay them more and treat them better.

They also have to buy a lot of new equipment. As any technology business knows that technology equipment wears out quickly. You're constantly replacing and upgrading it as people demand more and more bandwidth. They would probably argue that a lot of the electronics that they have in their business are probably also sitting on those containers as well.

How Is the Labor Market Changing? 

Michael: A lot of people rethought their careers, decided to change careers, move somewhere else. Is this phenomenon here to stay? People just go switch careers. Are we going to get new people and new drivers, new waiters, new accountants, new computer developers? Or it's just a new trend where people will be changing their professions every year.

Prof. Angel: A little of both. We've had a major shock and we're in the midst of what I call the great re-optimization in that suddenly, bang, everybody was sent home. People discovered, ‘Wow, I can work from home from anywhere.’ So this is leading a lot of people to re-optimize where they live and they're no longer limited by the local labor market. Likewise, companies are no longer limited by the local labor market. So now we're seeing this sort of great re-optimization.

So we're seeing a lot of shuffling right now. I think that will stabilize, but I think we now have a longer-term trend where again, people will no longer feel limited to their local labor market but instead view themselves as part of a national labor market. So for the people who can do the working from home, they have many more opportunities now. With the tight labor market, now is the time to go for them because they know a lot of people are eager to hire. So it's easier to get a job now, which means it's easier to leave the old job.

Michael: Don't you think business owners would look at it from the point of view of the global labor market? If the person doesn't have to be in the office in New York, why the person has to be in the United States as a whole, I can hire someone across the ocean that has the price.

Prof. Angel: That is true. However, you do run into more problems when you're working globally, whether it is time zones, labor laws, tax situations, language barriers, and other things so yes, many companies do think globally now. Again, a limit to how global you want to be. You want to make sure that you're close enough to maintain a lot of those connections with workers. So if they're too far away in too different a time zone, then it becomes harder to manage.

When Will Inflation Slow Down?

Michael: When would you expect inflation to slow down?

Prof. Angel: I think it will slow down over the next few months. To what level, I think it will probably take a few years for this cost shock to work its way all the way through the economy. But I think it'll be more like 3% next year than the 6% or 9% we're at right now.

Is the World Having Inflation?

Michael: The entire world uses the US dollar as instrumental exchange. What happens to other currencies? What about inflation in the world? Is it just the entire world goes through inflation in this case, or there are other countries where we see a reverse trend in the currency exchange with the US dollar?

Prof. Angel: Each country has its own individual circumstances. So you can look at some countries with serious troubles, like Venezuela, where they're basically having hyperinflation. You look at other places. I believe the European Union has less than we have in the most recent statistics. So it really is a function of the individual circumstances around each currency.

How to Protect Savings During Inflation?

Prof. Angel: So the thing to do to protect yourself is, well, first of all, shop carefully. That's the most important thing. Don't just take price increases for granted. When you see one vendor raising their price, well maybe another one hasn't gotten around to it yet. So you need to be far more aware and do much more shopping to find the best deal. That's the most important thing. 

Buy things that provide lasting value, whether it's hard things like furniture or things that provide memories like a good fun experience for the family. These are the kind of things that can provide lasting value.

Again, work on teaching yourself. There are plenty of resources out there that are pretty inexpensive. Whether it's a book from the library or a YouTube video, try to concentrate on things that will build your own human capital things. That'll teach you useful stuff, whether it is how to fix something at the house without having to call in a professional. A lot of great YouTube videos that show you how to do that. 

Of course, sometimes you really need a professional and you want to be careful on that, but also a lot of good videos out there on investment topics. A lot of good books in the library and at the bookstore. 

Work on building your own human capital, because that's something that inflation won't take away.


Inflation has hit all sectors of the US economy. As we expect it to slow down in the coming year, it’s our duty, as a consumer, to reconsider spendings and learn to make informed choices.

We thank Prof. James J. Angel for explaining the impacts of inflation on consumers' money and businesses. If you have thoughts to share about inflation, please comment below. For more consumer tips, please check our YouTube channel.

  • consumers
  • expert video
  • finances
  • inflation
  • inflation rate
  • inventory
  • labor shortage
  • price increase
  • product shortages
  • savings
  • supply chain
  • us economy

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