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Buffett Notes Rising Prices Due To Serious Levels of Inflation

Serious Levels of Inflation
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EDITOR NOTE: Berkshire Hathaway doesn’t invest in “stocks” per se, but rather in companies. Their large shareholdings allow them to exert influence in the goings-on of almost every company it invests in. And right now, particularly in the housing portion of their portfolio, they’re seeing a rise in input costs, all of which is translating into higher consumer prices. In fact, Q1 earnings saw a tripling of mentions of inflation during analyst conference calls in general. Inflation has become a factor in nearly every company’s next-quarter guidance. Yet Federal Reserve chair Jerome Powell fails to acknowledge the possibility that inflation may not be as “transitory” as it seems. While some pundits on the fringes of doom-and-gloom economic thought are warning of hyperinflation--something dramatically more severe than what the Fed is expecting--the only thing that might ward off such a devastating outcome would be the Fed’s “tools,” of which Powell says there are plenty. You have to trust the Fed in order not to worry about serious levels of inflation (or hyperinflation). But it's hard to have confidence in the Fed, not only for its lack of honesty with the American people, but also for its dismal track record in forecasting and solving economic crises.

Billionaire Warren Buffett is joining the long list of executives saying serious levels of inflation are starting to take hold as the U.S. economy roars back from the COVID-19 downturn. 

"We are seeing substantial inflation," Buffett said at the Berkshire Hathaway annual shareholder meeting broadcast exclusively by Yahoo Finance. "We are raising prices. People are raising prices to us, and it's being accepted."

Buffett called out much higher steel costs impacting Berkshire's housing and furniture businesses. 

"People have money in their pocket, and they pay higher prices... it's almost a buying frenzy," Buffett said, noting that the economy is "red hot."

The Oracle of Omaha isn't alone in battling inflation at the moment from everything to higher steel prices to runaway copper prices. 

The number of mentions of "inflation" during first quarter earnings calls this month have tripled year-over-year, the biggest jump dating back to 2004, according to fresh research from Bank of America strategist Savita Subramanian. Raw materials, transportation, and labor were cited as the main drivers of inflation.

Subramanian's research found that the number of inflation mentions has historically led the consumer price index by a quarter, with 52% correlation. In other words, Subramanian thinks investors could see a "robust" rebound in inflation in coming months in the wake of the latest round of C-suite commentary.

"Inflation is arguably the biggest topic during this earnings season, with a broad array of sectors (Consumer/Industrials/Materials, etc.) citing inflation pressures," Subramanian notes.

The world's biggest companies are taking action, just like Buffett at Berkshire. 

Proctor & Gamble said recently it would begin to hike prices on baby care, feminine care and adult incontinence products in the United States. Price increases will range from mid- to high-single digit percentages. The hikes will go into effect in mid-September.

Whirlpool CFO Jim Peters recently told Yahoo Finance Live the appliance maker just jacked up prices by 5% to 12% to counteract rising steel costs.

Kleenex maker Kimberly-Clark said it will increase prices in the U.S. and Canada on the majority of its consumer products due to "significant" commodity cost inflation. The percentage increases will range from mid- to high-single digits and go into effect in June.

Original post from Yahoo!Finance

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