Inflation: It’s Just The Start

But it is not a price sensitive economy right now in the least. And I don’t know exactly how one shows up in different price indices, but there’s more inflation going on, quite a bit more inflation going on that people would have anticipated just six months ago or thereabouts. – Warren Buffett

Yeah. And there’s one very intelligent man who thinks it’s dangerous and that’s just the start. – Charlie Munger

To say that we were surprised by some of the discussion at the Berkshire Hathaway Annual Meeting would be an understatement. The conversation Warren Buffett and Charlie Munger leaned into on inflation was possibly the most interesting. Warren and Charlie gave large credit to Larry Summers for his willingness to stand alone on the effects of today’s fiscal and monetary policy on prices. We thought this was an ideal time review Buffett and Munger’s discussion and see what conclusions we could draw.

Warren Buffett answered a question on the signs of inflation by saying:

We’re seeing very substantial inflation. It’s very interesting. We’re raising prices. People are raising prices to us, and it’s being accepted. Take home building. We’ve got nine home builders in addition to our manufactured housing operation, which is the largest in the country. So we really do a lot of housing. The costs are just up, up, up. Steel costs, just every day they’re going up. And there hasn’t yet been because the wage stuff follows. The UAW writes a three-year contract, we got a three-year contract, but if you’re buying steel at General Motors or someplace, you’re paying more every day. So it’s an economy really, it’s red hot. And we weren’t expecting it.

Greg Abel followed his comments by saying:

Yeah. Warren, I think you touched on it, when we look at steel prices, timber prices, any petroleum input, fundamentally there’s pressure on those raw materials. I do think something you’ve touched on, Warren, and it goes really back to the raw materials. There’s a scarcity of product right now of certain raw materials. It’s impacting price and the ability to deliver the end product. But that scarcity factor is also real out there right now is as our businesses address that challenge.

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Disclosure: The information contained in this missive represents Smead Capital Management’s opinions, and should not be construed as personalized or individualized investment advice and ...

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