No. of Recommendations: 16
Berkshire's 2022 after-inflation performance makes me wonder if it prompted this statement, though I wouldn't characterize last year's inflation as "runaway" exactly...
Though the absolute rate isn't at 1970s levels, I suppose it's fair to call it "runaway" in terms of rate of acceleration.
It picked up a lot faster than most people thought, even those who expected inflation to pick up.
Bam!
There's been discussions in the past on Berkshire's perceived power to keep up with inflation given the considerable moat many Berkshire companies are perceived to have, the theory
being that they should have greater pricing power than the average stock to keep up in a high inflation environment.
Does the decline illustrated in the metric above concern you at all, or make you question Berkshire's ability to be inflation protected? With the relatively hot and rebounding January CPI reading, it's a burning topic on my mind.
Well, for sure, the acid test of pricing power is to see what happens when they raise prices.
I am sure most Berkshire units are raising prices now.
It will be very interesting to see how that shakes out...will it be a transient dip in profitability, or a real drag.
It's a bit too soon to tell.
As I mentioned a year or so ago, for once this might be one of those times to watch top line revenue numbers.
Maybe margins will suffer for a while because of all the one-time shifts in pay, fuel, staffing levels and so forth.
But if the revenue is holding up and rising in real terms, that gives hope that the all-important pricing power is for real.
The clients are still buying the product, in real terms.
Early signs, as far as I can tell, are that profits definitely aren't keeping up.
They seem to have weakened more than the economy has. For now.
Jim
