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Monday, May 03, 2010

Buffett on Inflation

A May 2 article at DailyFinance.com is worth noting for pointing out what Warren Buffett had to say on inflation.

The reporter noted: “As an economic recovery gains steam, ‘the prospects for significant inflation have increased,’ Buffet warned. ‘Not only here, but around the world.’ And the warning is meaningful beyond Buffett's guru status. With stakes in a broad variety of businesses, Buffett's Berkshire (BRK.A) has greater insight into changing business conditions than most investors could ever hope for.”

The rest of the article is adequate, but offers few insights on why this might be the case.

In the end, it is not an economic recovery that necessarily warrants concerns over inflation. It is the fact that the Federal Reserve has expanded the monetary base at an unprecedented rate – particularly from September 2008 to February 2010. And it is that historic move that threatens inflation. After all, inflation, in the end, is always about too much money chasing too few goods, or money supply running ahead of money demand.


Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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