Federal Reserve Chairman Ben Bernanke is very smart and capable of keeping inflation in check although rising consumer prices are a concern, says legendary investor Warren Buffett.
Bernanke has said that both inflation and inflation expectations right now don't warrant interest-rates hikes, although the Fed will be watching should conditions change.
High commodity prices worldwide, however, could spread beyond food and oil and force businesses, even Buffett's Berkshire Hathaway and its subsidiaries, to raise prices even if customers aren't buying.
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"I think he's a very, very smart man," Buffett tells CNBC, referring to Bernanke.
"I hope he's right, that we can do what we're doing and inflation won't get going. But he is as conscious of inflation as I am, or anybody is. You know, I don't think there could be a better Fed chairman, but I still worry about inflation."
The Federal Reserve is probably quite aware of investors' concerns about inflation, although it is important to remember monetary-policy officials often interpret events differently.
Inflation can come even when many industries are stuck with excess capacity.
"If we get enough commodity-price increases, we raise our prices even though business is not good," Buffett said. "That happens, for example, in carpet. Carpet is oil to some degree. There's just no way we can take the price increases, even though our business is not good. Our profits are not good at all in the carpet business. We still have to raise prices."
|Fed Chair Ben Bernanke
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Earlier this week, Federal Reserve policy makers said the economy is recovering at a “moderate pace” and a pickup in inflation is likely to be temporary, as they agreed to finish $600 billion of bond purchases on schedule in June.
“Increases in the prices of energy and other commodities have pushed up inflation in recent months,” and the Fed expects “these effects to be transitory,” the statement said.
Federal Reserve officials earlier this week also forecast that a measure of prices will rise between 2.1 percent and 2.8 percent this year before moderating. The forecast range for this year compares with the 1.3 percent to 1.7 percent rate estimated in January. The Fed’s preferred gauge of inflation, the personal consumption expenditures price index minus food and energy, will rise a more modest 1.3 percent to 1.6 percent this year, up from January’s estimates of 1.0 percent to 1.3 percent and still within the Fed’s preferred range of 2 percent or a bit lower.
U.S. central bankers also lowered their forecasts for growth. U.S. central bankers said the economy will expand in a range of 3.1 percent to 3.3 percent this year, down from 3.4 percent to 3.9 percent forecast in January.
Fed officials tend to hike or slash interest rates based on the behavior of headline inflation rates and their relationship with rates stripped of volatile food and energy prices.
Today, core inflation rates aren't troublesome to monetary-policy officials. Yet it seems food and energy prices are affecting everyone these days.
Friday, the government said U.S. consumer spending rose in March as households stretched to cover higher costs for food and gasoline, with inflation posting its biggest year-on-year rise in 10 months, according to Reuters.
"The story in the first quarter was higher gas prices are forcing people to spend more at the expense of other items," says Christopher Low, chief economist at FTN Financial in New York, Reuters reports.
"The inflation burden increased in the quarter, things were progressively worse as you moved from January to March."
Americans, meanwhile, may find good news on the nation's farms.
The Agriculture Department reports that farmers intend to plant 92.2 million acres of corn this spring, a 5 percent increase over last year, according to the Associated Press. The crop would be the second-biggest corn crop since 1944. That harvest, experts say, could ease global food inflation.
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