Warren Buffett, Inflation, and Excel

Berkshire Hathaway is raising prices, and their costs are increasing. Inflation is on the rise. This Excel charts illustrate the the problem.

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Berkshire Hathaway is raising prices, and their costs are increasing. Inflation is on the rise. These Excel charts illustrate the the problem.

On May 3, 2021, CNBC quoted Warren Buffett saying, “We are seeing very substantial inflation. We are raising prices. People are raising prices to us, and it’s being accepted.”

So I decided to take another look at inflation.

As you can see in the chart on the left, the Rates Of Change (ROC) for Producer prices from the US Bureau of Labor Statistics (BLS) have risen steeply since April 2020—at the depth of the pandemic. Both industry and commodity rates are far above the Fed’s 2% inflation target.

And last Friday’s updated value for the ROC of Personal Consumption Expenditures spiked to 11%.

Ouch!

However, much of the spike is expected. That’s because when we divide a current value by a value that had fallen significantly one year earlier, we WILL get a spike. Even so, prices are rising, as Warren Buffett said.

From an Excel perspective, I used Power Query to download 21 years of monthly data for about 6,000 data series from the Federal Reserve Economic Database (FRED). The series were distributed about equally between Commodities and Industries—giving me about 1.3 million rows of data that I split into two Tables.

To analyze the data, I used Excel’s FILTER function—surrounded by a MEDIAN function—to find the median Rate of Change by month for Industry prices and Commodity Prices. (See Using the Hidden Power of Excel’s FILTER Function to learn how I set up the FILTER function.)

I charted the ROC of those trends in the chart on the left, and then charted the ROC of Personal Consumption Expenditures on the right.

Notice the legend in the figure repeated here. You can see that not only does it show information about both charts, it’s also centered above the two charts. How can you do something similar?

No problem. I just set up a third chart, with four data series. I assigned colors and names as you see in the legend and the charts. Then I distorted the chart so that all I could see of it was the legend in the figure.

Finally, from an Excel perspective, I should mention that my development was very slow at first. Not only did Power Query take a long time to download all that data, my worksheet formulas took a long time to calculate. Luckily, however, I had developed a methodology that allowed me to work on a small subset of the data easily, which allowed my queries and calculations to process in seconds.

And then, when everything was completed and tested, I changed values in four cells, started the process, then did other things for a while as the computer worked.

And finally, from an economic perspective, I should clarify that the Fed doesn’t follow the raw data for the PCE to track inflation, as shown by the red line above. Instead, it follows the chain-type price index of that data, as shown here:

As you can see, as of March 2021, inflation was rising steeply. And that likely means that (as of early May 2021) the Federal Reserve Board could act soon to cool off the economy—even though the US still is in the Covid recession.

Looking ahead, will the US have little inflation and slow growth? Rising inflation and fast growth? Or will we have rising inflation and slow growth—known in the 1980s as stagflation?

These topics definitely are ones that your company will need to monitor carefully in the months and years ahead!