Warning: What Warren Buffett Says About Rising Inflation Matters

If you didn’t believe me or you didn’t want to believe me, then perhaps you will believe Warren Buffett about rising inflation. It really was inevitable and although I’d like to take credit for being one of the very first and only ones talking about the danger of inflation returning to the world economy, the truth is that it had to happen.

I've been talking about rising inflation for months, but now that Warren Buffett is talking about it, consider it a warning and be prepared.

With the economy suffering so much and so many businesses going down and under, there was only one way to see the course that would come when things started to open up and return to normal: Inflation from new higher wholesale and retail prices!

Have You Already Seen Any Trends?

Before I give the stage to financial wizard Mr. Buffett, let me remind you just a bit about what I wrote last October, “Inflation Looms as 2021 Draws Near and Few Are Talking About It”.

If the word inflation doesn’t ring any bells in your head when I say it, it may mean you are fairly young and haven’t had a lot of experience with it or worse, you are getting older and you just have forgotten what it means. But if you still have any memory or senses in your head after months of crazy 2020, then you just might get a chill down your spine at the thought of another blow against your wallet: Inflation, 2021 style!

I know there are some places you are seeing the trends even when you don’t hear the word inflation attached to it. One case has certainly been the price of gasoline.

Gasoline prices

The gas price increases, which are alarming after a period of years where we proudly shouted about out energy independence, are at least partly to be blamed by the pandemic and the resulting need to recover profits and make the consumer pay.

Here are some of the facts. Gas prices climbed over 9% in the past month and 22.5% from last year. Worse yet to come is that “fuel prices are expected to reach a three-year high this summer” according to reports from Business Insider.

Gas prices are up 22.5% from last year and were the biggest contributor to an overall increase in goods and services in the nation, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index.

A recent government report shows gas prices are expected to climb to a three-year high this summer. Prices at the pump will average $2.78 per gallon, up 34% from 2020, in the next six months, according to the Energy Information Administration (EIA). I think they may go even higher.

Gasoline prices have been blamed on everything from hurricanes and bad weather, natural disasters, wars, even the recent blockage of the Suez Canal, and the pent-up consumer demand that have caused prices to rise dramatically. Some of that is true, but the profit motive and the corporate drive to make up the losses of 2020 are a big factor too.

The price of a spaghetti dinner up 43%?

I don’t like to pick on one of my most favorite family restaurants, but I will: Olive Garden. Yes, I know they have the absolute right to run their business as they see fit, but when the price of a spaghetti dinner rises over 40% in a year, I have to call them out on it.

Restaurants have been one of the hardest hit sectors during the COVID-19 period and so many have gone under that it is no wonder that Olive Garden would do something like “raise every freaking price” on the menu! I guess it’s their way of saying welcome back? I’m not really sure as to why, but I couldn’t help but say it now.

I love eating there, but I have to say it out loud: spaghetti dinners have to increase because the price of durum semolina wheat and tomato sauce is going through the roof! There has to be another reason.

One of my very favorite items on the Olive Garden menu has always been their “Create Your Own Pasta” dinner. That’s the one that allows you to choose from several types of pasta and sauces and toppings, all for a family friendly low price or at least that’s the way it used to be.

As recently as just before the pandemic hit, you could dine on a spaghetti and meat sauce dinner, unlimited salad and breadsticks for as little as $7.99 a person right here in Central New Jersey (just a stone’s throw away from NYC). Today, the menu price calls for that same dinner at $11.49!!! That’s an increase of over 43%. That is today. I am afraid to ask about next week.

Here’s what I wrote on October 2, 2020:

As you may know, I am a great believer in couponing and discounts. In fact, I get just about every restaurant dealio or coupon you can name sent to my email box every week and I try to take advantage of them when I can. Not going out to a restaurant every once in a while is a bit of a hardship, so now that it has become an option again here in NJ, I decided to see what is being offered. When I checked them and looked at the menu items I found…Shock Theater!

One of my favorites, Olive Garden, has upped its special deal menu pricing quite dramatically. The famous soup, salad, and breadstick lunches and dinners that have been priced at about $6.99 and $8.99 are now on the menu at $7.99 and $9.99 each. That’s an 11-15% increase since last February. Even the soft drink prices have increased about 7% each.

For your information, menus everywhere have taken on a very similar look, even at McDonalds. I found similar price increases at most of the restaurant menus I have checked.

Fighting Back Against Rising Inflation?

In February, I wrote about “Money Saving Tips to Combat Inflation in 2021”:

I keep seeing it more and more every day. The inflation factor is out there and I am amazed that not many seem to be talking about it as being a problem. It may not be across the board, but food inflation and energy inflation will be making a dent in your finances if they haven’t already.

Prepare yourself. You may be thinking that raising the minimum wage and government “rescue” programs will solve all of your problems, but I am here to tell you not to hold your breath. My usual smile and optimism is definitely taking a hit here with a newer, harder, colder look at what is going on.

Now Back to Warren

When Warren Buffett speaks, we should listen. The billionaire is now 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 on Saturday. “We are raising prices. People are raising prices to us, and it’s being accepted.”

Buffett know about such things and he also knows about things like much higher steel costs impacting his company Berkshire’s housing and furniture businesses.

I couldn’t help but think what this might imply for President Biden’s infrastructure plans and what inflation now implies about the already enormous cost of it all.

It’s Real, It’s Here, Get Over It?

The number of mentions of “inflation” during the past three months by those in the know have tripled. The rate projected is the biggest jump dating back to 2004, according to research from Bank of America. And while raw materials, transportation, and labor costs were cited as the main drivers of inflation, I see it as more than just those. It’s a way to restore the losses in our economy after COVID-19 and all that pent-up demand alone won’t cure it without help.

The world’s biggest companies are taking action, just like Buffett at Berkshire. Procter & Gamble said it would begin to hike prices on baby care, feminine care, and adult incontinence products in the United States. Price increases will range from 5% to 9% and will go into effect in mid-September 2021.

Whirlpool CFO Jim Peters recently said that the appliance maker just jacked up prices by another 5% to 12% due to “rising steel costs”. Really? Have you shopped for an appliance lately and wasn’t this a topic just a year or two ago when Trump was in office and the “tariff wars” were raging with China? Any excuse in a storm I guess.

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 5%-10% and go into effect in June. Don’t catch a summer cold and have to blow your nose if you can help it.

Final Thoughts

We have all been in a lull now for many years as inflation has stayed around 2% for a long period of time. Two percent doesn’t impact you much as the high inflation did back in my youth in the 1970s when inflation was wild and interest rates hit as high as 20%! But it adds up over time.

Now, we may see numbers that will impact over months instead of years so it’s a little scary. I am not as smart as Warren Buffett is, but I too see rising inflation coming and I don’t see anyone really doing much about it.

We are so anxious to “open up” the economy that we think “to hell with inflation, let’s go and party”. Well, parties are fun but they do cost money and not everyone is going to be celebrating when the bill comes to the table.

Are you prepared for inflation 2021 style? What are you going to do when you are faced with the hard decisions caused by the increasing cost of living? Will government programs be the answer or will you find your standard of living declining both now and in retirement?

Image courtesy of DonkeyHotey on Flickr via CC BY 2.0 (with changes)

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