Warren Buffett sees higher inflation on the horizon. In his recent shareholders’ meeting, he reported that suppliers were charging Berkshire Hathaway higher prices for goods. Particularly, he mentioned being charged higher prices for wood and steel. This followed several months of reports of higher inflation in the media. In this article, I’ll explore Buffett’s comments on inflation and whether they have any implications for Canadians.
Berkshire charging higher prices
In his annual meeting, Buffett mentioned that he was seeing higher prices at Berkshire’s homebuilding business. In response, he said, Berkshire raised the prices it charged to its own customers. In his comments, Buffett didn’t say whether he thought the price increases were “transitory” or permanent. He did say that he was “accepting” the higher prices being charged, which may imply that he thinks this is long-term inflation.
Will this affect Canadians?
If Buffett is correct, then inflation in the U.S. is on the rise. Indeed, the Federal Reserve reported recently that the CPI was up 4.6% in April, with “core” inflation up 2.2%. These are both higher rates than were observed in any quarter in 2020.
But the question remains: Will this affect Canadians?
Canada’s reported inflation for March was 2.2%. That’s higher than in 2020, but not extremely high. In fact, it’s just .2% higher than the Bank of Canada’s official goal of 2%. Lately, the Canadian dollar has been gaining versus the U.S. dollar, so it’s not surprising that the pace of inflation has been slower up North. However, some specific commodities — oil, corn, and gasoline — are rising far more than the Canadian dollar is. So, it’s quite likely that Canadians who use these items a lot are feeling the pinch.
One inflation hedge worth considering
If you’re concerned about inflation, there are many things you can do to try and combat it.
One of the best is to invest your money. When inflation runs high, stocks, housing, and metals tend to increase in price. So, by investing your money in such assets, you can protect your wealth against CPI increases.
One particular category of investment worth considering is energy stocks. Energy stocks like Suncor Energy (TSX:SU)(NYSE:SU) make their money by extracting, refining and selling crude oil. Crude oil is one of the commodities that’s rising right now, so companies like Suncor make money off its gains. You might have noticed that gas prices have started rising at the pumps. That’s all due to the rebound in demand caused by the economic recovery from COVID-19.
With more people driving, there’s more demand for gas. And Suncor Energy directly profits off this trend. In its most recent quarter, Suncor Energy achieved the following:
- $821 million in earnings (up from a $3.5 billion loss)
- $2.1 billion in cash from operations (up from $1 billion)
- $746 million in operating earnings (up from a $421 million loss)
These were pretty strong growth rates. And they were all made possible by the increase in the price of oil in the first quarter. As oil keeps rising, so will Suncor’s profits. And that could make its stock a valuable hedge against inflation.
