Billionaire investors Warren Buffett and Charlie Munger recently held their annual Berkshire Hathaway shareholders meeting. And in it, they discussed the rather pressing issue of inflation and how it’s affecting the companies they own.
During the question and answer session, Buffett talked about how the price of things like steel and timber is going up for many of the brands in their portfolio and how, eventually, they are going to have to pass these costs on in the form of higher prices to consumers.
What was scary about what Buffett was saying was the high cost of these goods didn’t seem to be pandemic-related. Yes, there has been supply chain disruption. But Buffett didn’t seem to think that these were short-run spikes that would disappear. They were here to stay.
Inflation Around The Corner
What he was saying in effect was that inflation was just around the corner. He didn’t explicitly claim that things would return to how they were in the 1970s and 1980s. But he did hint that he was seeing something similar in the data.
And it’s not hard to understand why. Governments have been printing money like mad in an attempt to reduce the fallout from their COVID restrictions. And, at the same time, citizens have been creating fewer goods and services. When you combine these two facts, you have more money chasing fewer goods. And historically, that means inflation.
When you add cryptocurrency to the mix, the story becomes even weirder. Bitcoin to AUD, for instance, has been on a relentless rise since the advent of the pandemic, revealing just how much people are willing to pay for a slice of the crypto pie.
Cryptocurrencies are also having an inflationary effect on currency by themselves. People are trying to swap out of paper dollars and into something they trust more. They may even invest some of their cryptocurrencies in the hope that this will generate a profit for them, and you can click here to lean about some of the platforms that can facilitate this. All of this means that bitcoin’s price is going to keep going up. Eventually, we could get to the point where nobody wants to hold traditional currency, making the inflation rate extreme.
Should Businesses Worry?
Inflation doesn’t usually hurt businesses. In fact, when the flow of credit is high, it actually makes debt cheaper to pay off. Creditors in the bond market get screwed. But companies themselves tend to fare well.
Businesses shouldn’t worry about price increases either. Yes, they may have to put up their prices at some point. But, remember, even if you have to put up prices, customers have more money in their wallets, so it all tends to even out.
If you feel like a PR disaster is heading your way, you can always point out that your costs have gone up – the driving force for a lot of inflation. Just tell your customers that your suppliers are charging you more and that, if you don’t raise the price, you risk going out of business entirely.
Right now, everyone is talking about inflation. Central banks are attempting to ignore the problem. But many of the world’s finest investment minds think that it’s coming. And when it does, you want to be prepared.