Warren Buffett, the world’s second-wealthiest man, said some businesses in his Berkshire Hathaway Inc. holding company were starting to feel the pinch of inflation as energy and commodity prices rise.
Soaring steel prices have hurt Berkshire’s MiTek unit, which makes steel connectors for roofs, Buffett told reporters on Sunday.
MiTek has increased its prices, but the move has not kept up with the metal’s rising cost, he said.
“Once the ball gets rolling, it’s hard to stop,” Buffett said of the inflation threat, a day after Berkshire Hathaway’s annual shareholders’ meeting.
“Once prices start increasing, it’s contagious.”
Carpet-maker Shaw Industries and brick producer Acme Building Brands were also being affected by higher oil and natural gas prices, Buffett said. Zinc and lumber prices have also risen.
Coca-Cola Co., he noted, would be hurt if aluminum prices were to go up significantly, because the beverage maker uses the metal for its cans. However, Buffett said so far that has not been a problem.
Berkshire is Coke’s largest shareholder and Buffett is a member of its board of directors.
Interest rates are going to rise, Buffett also said, but it is not clear to him whether it will be a sudden rise, as in 1994, or a gradual transition.
“I wouldn’t bet on it being smooth, but I’m not saying it can’t go the other way,” he said. “We’re prepared for it not to be smooth.”
Buffett said he was concerned about the United States’ ballooning trade deficit and warned it could cause a “severe disruption” in financial markets at some point in the future.
“I don’t think it’s sustainable,” he said of the deficit.
Berkshire has put $12 billion in five major foreign currencies, betting the U.S. dollar will decline over time as a result of the deficit. He would not specify the currencies.
As for investing in companies overseas, Buffett said he would be open to it, but it is harder to find companies he understands in foreign countries. While he did invest in Chinese oil company PetroChina, he felt familiar with the oil business.
He said Berkshire would love to buy companies outright in Germany, France or Britain, but that businesses over there that are looking to sell tend not to think of Berkshire.
“I hope we have more luck,” Buffett said. “But I’m not going to campaign for it.”
Berkshire ended 2003 with a stockpile of $31 billion in cash, making it increasingly difficult for Buffett to find places to invest. Berkshire’s acquisitions of food distributor McLane and manufactured housing company Clayton Homes last year totalled about $3 billion, but Buffett said he wants to buy a much bigger business.
“What we’d really like to find is something that’s five, $10 or $20 billion.”