Warren Buffett says Berkshire Hathaway is seeing ‘very substantial inflation’.

[james.hendrickson]

More from the Oracle of Omaha.

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Warren Buffett says Berkshire Hathaway is seeing ‘very substantial inflation’ and raising prices

PUBLISHED MON, MAY 3 20219:06 AM EDTUPDATED MON, MAY 3 202111:43 AM EDT
Yun Li

@YUNLI626

KEY POINTS

* “We are seeing very substantial inflation,” Warren Buffett said at the conglomerate’s annual shareholder meeting Saturday. “We are raising prices. People are raising prices to us and it’s being accepted.”

* Berkshire Hathaway owns one of the nation’s largest homebuilders, Clayton Homes, along with companies such as Benjamin Moore paints and Shaw flooring.

* Inflation has begun to accelerate recently due to multiple factors, including increasing demand and struggles with some areas of the supply chain, as well as just easier comparisons with the pace of a year ago.

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Gerard Miller | CNBC
Warren Buffett is seeing inflation among Berkshire Hathaway’s collection of businesses as the economic recovery from the Covid pandemic kicks into high gear.

“We are seeing very substantial inflation,” the Berkshire chairman and CEO said at the conglomerate’s annual shareholder meeting Saturday. “It’s very interesting. We are raising prices. People are raising prices to us and it’s being accepted.”

“We’ve got nine homebuilders in addition to our manufacture housing and 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, you know, just every day they’re going up,” the legendary investor added.

Berkshire Hathaway owns one of the nation’s largest homebuilders Clayton Homes, along with companies such as Benjamin Moore paints and Shaw flooring.

Fed has backed itself into a corner on inflation: Allianz’s El-Erian

Inflation has begun to accelerate recently due to multiple factors, including increasing demand and struggles with some areas of the supply chain, as well as just easier comparisons with the pace of a year ago. The core personal consumption expenditures price index, which excludes volatile food and energy prices, rose 1.8% in March, the fastest pace since February 2020. The headline number increased 2.3%, the quickest pace for that measure since 2018.

Federal Reserve Chairman Jerome Powell reiterated last week that he expects inflation to show a temporary move higher then settle back to around the central bank’s 2% target. The Fed has resolved not to raise interest rates until the economy sees full, inclusive employment, so long as inflation doesn’t run too far above the goal.

Higher price pressures could weigh on stocks as inflation erodes the value of future company profits, and can cause a spike in Treasury yields.

For a full recap of Buffett’s comments at the annual meeting, see here.

— CNBC’s Jeff Cox contributed to this article.

Source here.

[bjl584]

I just wonder if we are seeing true inflation or just temporary price spikes due to all the disruption and distortion in the markets and supply chains.
The next 4 to 6 months will be telling.

[disneysteve]

I just wonder if we are seeing true inflation or just temporary price spikes due to all the disruption and distortion in the markets and supply chains.
The next 4 to 6 months will be telling.

Places are much quicker to raise prices and much slower to lower them, if they ever do. There are many examples of companies instituting new "temporary" fees in response to market conditions and then never retracting them even long after the market conditions are back to where they were. They just use the current crisis as an excuse to do something they wanted to do anyway.

[TexasHusker]

Hey wait, Jerome Powell tells us there is no inflation. ???

In the last 12 months:

Lumber: +265%
WTI Crude: +210%
Gasoline: +182%
Brent Crude +163%
Heating Oil: +107%
Corn: +84%
Copper: +83%
Soybeans: +72%
Silver: +65%
Sugar: +59%
Cotton: +54%
Platinum: +52%
Natural Gas: +43%
Palladium: +32%
Wheat: +19%
Coffee: +13%"


No, no inflation here! Keep printing money and sprinkling citizens with $1500 checks every 60 days - it's all good!

[james.hendrickson]

Hey wait, Jerome Powell tells us there is no inflation. ???

In the last 12 months:

Lumber: +265%
WTI Crude: +210%
Gasoline: +182%
Brent Crude +163%
Heating Oil: +107%
Corn: +84%
Copper: +83%
Soybeans: +72%
Silver: +65%
Sugar: +59%
Cotton: +54%
Platinum: +52%
Natural Gas: +43%
Palladium: +32%
Wheat: +19%
Coffee: +13%"


No, no inflation here! Keep printing money and sprinkling citizens with $1500 checks every 60 days - it's all good!

Woah....natural gas is up? Thats been price stable for years.

And isn't lumber a special case, my understanding is the closed border with Canada has a lot to do with the prices for that commodity being high.

[disneysteve]

The average price of gasoline in April 2020 was $2.17. Today it is $2.91. How is that 182% higher? That would make it nearly $4.00. It's still under $3.00.

I don't know about the rest of that list but the gas price increase certainly isn't true.

[LivingAlmostLarge]

Hey wait, Jerome Powell tells us there is no inflation. ???

In the last 12 months:

Lumber: +265%
WTI Crude: +210%
Gasoline: +182%
Brent Crude +163%
Heating Oil: +107%
Corn: +84%
Copper: +83%
Soybeans: +72%
Silver: +65%
Sugar: +59%
Cotton: +54%
Platinum: +52%
Natural Gas: +43%
Palladium: +32%
Wheat: +19%
Coffee: +13%"


No, no inflation here! Keep printing money and sprinkling citizens with $1500 checks every 60 days - it's all good!

This is probably due to also interest rates being low, not just the stimulus checks.

The price of crude doubled since last year. Not the price at the pump yet. Last year they were paying places to take crude. They had too much and couldnt' store it.

[TexasHusker]

This is probably due to also interest rates being low, not just the stimulus checks.

The price of crude doubled since last year. Not the price at the pump yet. Last year they were paying places to take crude. They had too much and couldnt' store it.

Interest rates are low because the Fed is manipulating the treasury artificially keeping them low by issuing $ billions in new treasury bonds and then immediately buying them back. If a corporation did this sort of shenanigan, the officers would be in a federal prison.

[TexasHusker]

The average price of gasoline in April 2020 was $2.17. Today it is $2.91. How is that 182% higher? That would make it nearly $4.00. It's still under $3.00.

I don't know about the rest of that list but the gas price increase certainly isn't true.

This is futures contracts. The price at the pump depends upon your particular location. In any event, it's up big time.

[disneysteve]

This is futures contracts. The price at the pump depends upon your particular location. In any event, it's up big time.

Ah. Okay. The prices I listed are the national averages, though, not our local numbers.

If we're talking about inflation, I'd say it's the pump price that actually matters to people.

[LivingAlmostLarge]

Ah. Okay. The prices I listed are the national averages, though, not our local numbers.

If we're talking about inflation, I'd say it's the pump price that actually matters to people.

Pump prices have gone up a lot though in a year. Prices I thought were going up for food during this year. But it's hard to pinpoint with goods being different sizes as well. Years ago I wrote about how ice cream gallon went from 64 to 59 oz so they made more money but charges the same $5.99 for a gallon of ice cream or milk or juice. Crazy. I think that inflation is juicing home prices as well. I don't know how that will turn out. Because people feel richer from the stock market so they spend more on homes because it's also more affordable because of the low interest rates. So people can spend more on everything.

[TexasHusker]

Ah. Okay. The prices I listed are the national averages, though, not our local numbers.

If we're talking about inflation, I'd say it's the pump price that actually matters to people.

Commodities prices matter to people. In fact, commodities affect virtually every aspect of life for the consumer. Price building a home over a year ago. Or a basket full of groceries. Or filling up your car. All boats are up, and going "upper". Way upper.

Commodities are traded by futures contracts, similar to stocks. Except you aren't buying a share; you are buying the privilege to buy a certain commodity at a specific price point at a future date. In the U.S., commodities are primarily traded on the Chicago Mercantile Exchange (CME), New York Mercantile Exchange (NYMEX), Intercontinental Exchange (ICE) in Atlanta, and the Kansas City Board of Trade in Kansas City MO. Across the pond, metals are traded on the London Metal Exchange (LME).

The price of a gallon of gasoline at your local 7-11 is going to be different that what it is trading for today on the exchange, as the trade today is what investors think the price will be at some point in the future, and they want the right to buy gasoline at that price at the options expiration date.

Obviously, traders are predicting runaway inflation in the coming months, and every indication is that they are correct.

The rich are somewhat shielded from the effects of inflation, due to the fact that they have assets that provide a hedge. The working class and poor are crushed by inflation because they do not have the assets to provide a hedge. When the stimulus checks run out, and interest rates finally rise to somewhat normal levels, the poor and middle class are going to get creamed. Dropping $1500 checks from helicopters every few months to keep the electorate pacified is like giving a drunk a drink. It tastes really good for a fleeting second, but the price for the $1500 will be a multiple of $1500.

[disneysteve]

The rich are somewhat shielded from the effects of inflation, due to the fact that they have assets that provide a hedge.

Definitely. I was also going to say that any inflation that has occurred really hasn't been noticeable because our overall spending is down dramatically. Maybe gas is up 50 cents a gallon, but we're driving 1/3 as much as pre-COVID so we're not actually spending more on gas. Maybe grocery prices are up but we're saving $500mo not eating out so our total food spending is actually down.

Overall, we are spending $2,000/month less than we did before COVID. That has way more than offset any price increases.

[TexasHusker]

Definitely. I was also going to say that any inflation that has occurred really hasn't been noticeable because our overall spending is down dramatically. Maybe gas is up 50 cents a gallon, but we're driving 1/3 as much as pre-COVID so we're not actually spending more on gas. Maybe grocery prices are up but we're saving $500mo not eating out so our total food spending is actually down.

Overall, we are spending $2,000/month less than we did before COVID. That has way more than offset any price increases.

Commuting for upper middle class has tempered, as Suzy can take her MacBook home and work on her spreadsheets in her dining room. Joe Sixpack working in sanitation at the city doesn't have that luxury. Poor, lower middle, and even middle-middle class folks are working with their muscles, so working at home isn't a viable option.

[disneysteve]

Commuting for upper middle class has tempered, as Suzy can take her MacBook home and work on her spreadsheets in her dining room. Joe Sixpack working in sanitation at the city doesn't have that luxury. Poor, lower middle, and even middle-middle class folks are working with their muscles, so working at home isn't a viable option.

Absolutely. I mean I can't work from home either, so my commuting miles haven't changed, but our leisure driving dropped to virtually zero so we're saving there.