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Episode 6 - All about inflation

In this episode of Blue Money, Jim and Kevin are discussing everything about inflation.

They start off by giving a basic definition of inflation, so we know exactly what we’re talking about.

They then segue into how the inflation rate is calculated.

Taking it a step further, the guys even get into why inflation happens.

Jim & Kevin understand that inflation is a major concern for their clients, and it probably is for you too.

That’s why they created this specific episode - because there are so many questions regarding inflation.

Inflation affects everyone, and if you want to know more about inflation, this podcast episode is for you.

Kevin & Jim even give advice on how you can protect yourself from inflation.

Listen to learn the ins and outs of everyone’s enemy - inflation.

To contact Lt. Jim Donnelly:

To contact Kevin McGarry:

To schedule a free financial assessment, fill out the form below.


Episode 6 – All about inflation

Announcer: This is Blue Money. A finance podcast made for cops by cops. With us you know your money safe. Lieutenant Jim Donnelley of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money.

Jim Donnelley: I want to welcome everyone back to the Blue Money podcast. My name is Jim Donnelley. I’m here with my co-host Kevin McGarry from Valley Financial, who’s the management partner. And today this Blue Money podcast, we’re going to talk about an important topic. It’s all over the media right now and it’s the inflation. And inflation rate us inflation rate has hit a 40 year high at 8.5% at the end of March. I think it was just really important topic to let everyone and calm their figures down. And just so everyone knows, it’s really important to understand what inflation is. So, the inflation basically is decrease in the purchasing power or value of money. And we generally measure that as the increase in price of goods and services. So, that’s basically saying our dollar is not going as far was, as it was yesterday or last year. So Kev, before we get dive into this podcast, is there anything that you’d like to touch upon?

Kevin McGarry: It’s funny, man. I just heard one of our clients say to me the other day is, you know what inflation is Kev? I’m like, no, what’s that? He goes having a ton of money in your pocket and being broke. That’s what he said to me. Now I mean, inflation’s real right now. I think a lot of clients, Jim, in past years, they never brought it up and they’re fueling it right now. I just went to have with a client, have lunch order Guinness and you know what that Guinness cost me?

Jim Donnelley: No idea. What?

Kevin McGarry: $9.

Jim Donnelley: It’s a lot of money, man. It’s got yourself a nice bourbon for that.

Kevin McGarry: Well, think about it. If I have my typical six pack, man, it’s expensive day. But inflation’s real. And I think people are feeling it in their pockets right now.

Jim Donnelley: Yeah. I think it’s important for everyone to understand out there. All the police officers that inflation rate is just not made by one person out there. And that’s where the number, he gives 8.5% and we just live with it. So, I think it’s important for everyone to understand where it comes from. So, basically US government measures something called the consumer price index. People out there might have heard of the CPI. Now who measures that it’s basically the US bureau of labor statistics. You might heard of BLS. They measure a price of the basket of goods on a monthly frequency. And that basket itself contains over 80,000 items from eight different major categories. So, that’s where we’re pulling all the information from, and those eight categories, Kev, if you’re aware, but I want to share with everyone. It’s housing, food and beverage, medical care, recreation, apparel, transportation, education, and communication, and other goods and services. So, after they get all that information, the BLS calculates the consumer price index by taking the weighted average of those 80,000 items. So, whereas inflation comes in. So, inflation basically is measured by calculating the change in the consumer price index from time periods. So, basically we get to all that data from 2020 and we compare from 2021 when that weighted average has gone up, that’s where we get the inflation rate. So, I just really thought it was really important for guys to understand, especially police officers, where are we getting this inflation rate. So, with that Kev knowing the inflation rate, do you have any mechanisms or anything that you can explain?

Kevin McGarry: Yeah, I think the big thing is the question we get a lot from our clients is why is inflation happen? What’s causing the inflation. Before I dive into an answer, we look at the economic side of it. And the terms are the reason why inflation increases is the demand pull inflation, cost push inflation, and build in inflation. You’re probably listening to this podcast. I’m like, what the hell did he just say, I’m going to break this down really easy. The demand pull inflation, hence the word demand. The demand goes up, you want more clothes? More people want cars, more people homes, price goes up right. And right now, if you think about it, think about homes. Fred Mac just came out and said, the US is short 3.8 million homes.

Jim Donnelley: That’s amazing.

Kevin McGarry: It’s crazy. They stopped building after the housing crisis. So, now you got a lot of people, trying to buy homes and the prices keep on going up, because there’s a supply issue. The cost push inflation. Think about it. Companies are pushing the increase in cost to the consumer. So, they’re pushing over to you. Look at lumber, lumber’s up over a hundred percent depending on the day. And that cost is being pushed off to the consumer. And the last one is built in inflation. And when prices go up historically, workers ask for pay raises and wages go up. Wages are up 6.7% right now. So, inflation’s up, like you said, eight and a half percent, but we have seen wage inflation increase. If we’re looking really pinpoint why inflation’s up right now, all the money from the government stimulus programs is in the market. You got a lot more people with cash flow. You have companies that weren’t producing goods because they were shut down. And now you got people trying to buy those goods supply issue. Everyone’s talking about the supply chain. I mean, how long does it take you to get mail? I mean it’s getting better.

Jim Donnelley: But it’s taking a while. 

Kevin McGarry: It takes a while. Energy prices, you’ve been into gas pump, what’s it cost?

Jim Donnelley: A hundred hours. Fill it up last time. 

Kevin McGarry: It’s crazy. I mean, and the last thing is we got fewer workers right now in the labor force. So, all that is making inflation where it is today.

Jim Donnelley: Sky rocketing. And I think it’s important to look at the historical inflation rates. Kevin, when we talk about that. The BLS has been measuring the consumer price index since 1913. So, we have over a century of inflation information. So, the average inflation in the US over the last 113 years was about 3.2%. So, 3.2% ain’t that bad. Now on a positive note, if we look from the 1990s and 2000s and the 2010s, the average inflation rate has only been about 2.4. So, which has dropped pretty good amount. So, I think this year, what really is scaring people or jumping out to people is if we have been used to 2.4 inflation rate for the last 30 years and this year we’re at 8.5 and it looks like it’s going up, it it’s scary for people because their money’s just not going as far as it used to. So, with that Kev, historically what are some ways that the feds have prevented such high inflations?

Kevin McGarry: Yeah. I think right now how do we reduce inflation? It’s a tough job right now. You hear the news is, can the fed land this softly? Because if they move too quickly, the stock market gets hit. If they move too slowly, inflation keeps on running. But historically they increase rates what they’re doing today. They try to get long term bond yields higher, which what that does increases rates on mortgage and other loans and that slows down spending. It also slows down the economy, but it takes the air out of inflation. The other way is, dollar gets stronger and we’re seeing that today. When a dollar stronger, you reduce the costs of goods that are imported. So, it’s a good time to buy imported beers besides Guinness. I mean, those prices haven’t gone down, which helps offset inflationary pressures. And then we increase production. You increase inventories. And once those inventories in goods meet the supply and demand, then prices will come down. That’s how they historically have attacked it.

Jim Donnelley: So, one article I read, I’ve read it last week when I knew it was doing his podcast, Kev. They spoke about how give you an example of inflation will affect US in the future. And what it basically was saying was that say if we could have a decade of 4- 5% increase in inflation, so say an average that adds 4.5 and we have that for 10 years. So, basically what’s that going to because is the consumer price index will raise by 55%, these numbers ain’t far off. But then when you really look at it, how it’s going to hurt your pocket, it stinks. That’s basically saying today a $50 gas fill will cost close to 80. Today’s 1500 monthly rent will cost 2300 in the future. Today’s grocery bill of 200 will cost you 300. But one that really jumped out was the same person who spends 4,000 per month to live. We’ll have to spend 6,000 for the same lifestyle. 

Kevin McGarry: That’s crazy. 

Jim Donnelley: So, the one thing that really jumped out for me was Kevin, how important it is to stay invested. Because if you’re keeping your money in a savings account or checking count, you’re getting nothing back and inflation is just going.

Kevin McGarry: It’s crazy. Jim, when we do the planning, you see someone that’s living off $50,000 worth of income and retirement, and then you price out 20 years later and it’s 80. They don’t believe you. When we do education planning and say, hey, this is the cost of college today, a hundred thousand dollars. But when your kids, your one year old is going into his freshman year, it’s 180,000. They don’t believe it.

Jim Donnelley: They don’t believe you, Kev. That’s the thing. They look at that number and they think we’re just making those numbers off as a scare tactic and it’s not. We’re basically basing those numbers only inflation rate historically and what it looks like in future. And like it’s scary when you see those numbers that will cost for an education for your children or what housing is going to cost, it shows us why it’s so important right now at the ground level to keep invested data core, stay on track. So, with that, Kevin, is there anything that other ways that we could kind of protect ourselves against inflation?

Kevin McGarry: Yeah. I mean, as you know when we do the planning, is be diversified, own stocks, own bonds. Don’t overweight. And here’s the thing. If we look at when inflation has rose more than 7%, Jim. Rose more than 7%, the median return on the index has been 7.3%. Versus when it’s below 7%, the median returns been 10.3%. So, you lost some return right on your investment. But when rates rise, you see volatility pick up, you see the phone calls, you see people asking a lot more questions right now, they get nervous and they’re looking for safer solutions and strategies, but where do we go? If you look at five year treasuries during times when inflation rose 7%, your medium return was a negative 2.4%.

Jim Donnelley: To lose them.

Kevin McGarry: To lose. So, you’re going to jump out something that historically the medium return’s been 7.3, when inflation’s high over seven and go into something that has historically performed at a medium return of negative 2.4. It’s not the right strategy.

Jim Donnelley: No, it’s not Kevin. And before we wrap that up and I know we’re going to go with this, but what do you think is the most important take for all of our police officers and all of our listeners to take from that, from what you’ve just said?

Kevin McGarry: Just look at your own training. You use history to get better at your job. I would say, if you look at history here and high inflationary times, we’ve gotten through it. The index goes up over time doesn’t go down. Declines are temporary. Advance is permanent, number one. Number two, state of course stay invested own stocks. Just talked about the returns during high inflationary times. You would’ve been rewarded rather than moving in, staying invested in stocks rather than moving into a safe investment, like a five year treasury during high inflationary times.

Jim Donnelley: That’s a great point. Given I tell all the listeners all the time, stay the course and stay invested. So, that’s going to wrap up the Blue Money podcast for today. I want to thank all the listeners for taking the time out our today and to listen to us. If anyone has any questions about the podcast or if they have any questions about their 457s, their 401s or anything in the financial industry, please don’t hesitate to reach out to me and Kev directly. Our contact information is in the show notes. You can also go to our website We have a lot of great resources there and please help us get the word out about these podcasts. It’s going to really help a lot of police officers, spread it, send it, forward the email, like us. So, please thank for listening. Be safe and have a great weekend. 

Kevin McGarry: Be safe out there.

Announcer: Thanks for listening to Blue Money, to learn more about Jim and Kevin or for a free financial assessment, visit or click on the link in the podcast description or show notes. Until next time safe investing.

This material is intended to be educational in nature and not as a recommendation for any particular strategy approach, product or concept for any particular advisor or client. These materials are not intended for any form of substitute for individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset class security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment clients as well as all other readers are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley Financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.

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