Charlie Munger predicted rising inflation was ‘inevitable’ because of democracies and told how to protect against it – ‘Most people will suffer’

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Charlie Munger passed away last year, but his broad perspective on life and decades of experience in the financial markets continue to guide millions of people around the world. There is no problem in the economic arena that Munger has not talked about. As inflation remains a hot topic in America amid the high cost of living, we decided to dig deeper into Charlie Munger’s archives of his shareholder letters and speech transcripts to see what he predicted about this phenomenon.

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“More inflation is inevitable” over the next 100 years

During a question-and-answer session at Daily Journal Corporation’s 2023 shareholder meeting, Charlie Munger was asked about the inflation crisis. Munger made some foreboding comments in response:

“I think more inflation over the next 100 years is inevitable with – given the nature of democratic politics – politics in a democracy. So I think we will have more inflation.”

Munger also said the Daily Journal holds securities instead of government bonds because of inflation.

According to the Charlie Munger archives compiled by The Inoculated Investor, the billionaire was asked about inflation during a conversation at the Pasadena Convention Center in 2011.

Munger responded that it is “quite likely” that we will have inflation for the next 50 to 100 years. However, he said that inflation did not stop the success of civilization. At another point, Munger reiterated this point:

“I remember buying ice cream cones and hamburgers for a nickel. On the other hand, after inflation, the country did great. Many of the people who were the Jeremiahs of that age turned out to be wrong; the country could handle just as much inflation. as it came.”

“Most people will suffer” from inflation

In 2022, while speaking at an event for the Singleton Foundation for Financial Education and Entrepreneurship, Munger predicted that life would become harder for ordinary people due to inflation.

“I don’t think most people will do very well with inflation. I think most people would be much better off, at least those who have money would be much better off, if there was no inflation. And so it’s just a question of how most of them won’t suffer.

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The relationship between democratic governments and inflation, according to Charlie Munger

During his talk, Munger said he believes inflation will rise because “democratically elected politicians” will “eventually” print too much money.

Whitney Tilson, publisher of Stansberry Investment Advisory and founder of Empire Financial Research, was a close follower of Charlie Munger’s life. He has compiled vast archives of transcripts of Charlie Munger’s speeches, dating back to when tapes were not allowed during Berkshire Hathaway meetings.

According to Tilson’s notes, Charlie Munger once said the following about inflation and its strange relationship with democratic governments:

“I think democracies are prone to inflation because politicians will naturally (over)spend – they have the power to print money and they will use the money to get votes.”

Munger said that while inflation continues to rise over the long term, it rises more in democracies. He said there was no “inflation” in the US between 1860 and 1914, which saw “strong growth”.

“I don’t think we’re going to get deflation. The bias is much more pro-inflation than it was between 1860-1914. But I don’t think other forms of government will necessarily do any better. Some of the worst excesses happen under tyrants.” Munger said.

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Munger believed that there was no “perfect correlation” between inflation and interest rates

According to the archives, Charlie Munger once said he never believed there was a “perfect correlation” between interest rates and inflation.

“I think there is a relationship, but it’s complex and not easily quantified.”

High quality business during inflation

Charlie Munger believed that companies that produce high-quality products for a specific niche of customers who can afford higher prices are better positioned to raise prices. He gave the example of ISCAR, the metal-cutting tool company that Warren Buffett’s Berkshire acquired in 2006.

“Iscar is so good at delivering good products, it’s hard to imagine them not selling more to customers who make more money.”

How to Protect Against Inflation According to Charlie Munger

At a WESCO annual meeting in 2009, Munger was asked by several people about the problem of inflation and how to protect against it. Here’s what he said:

“I remember 2c stamps, 5c hamburgers and the 30c/hr minimum wage. In the 80 years since those prices, there has been a lot of inflation. Has it destroyed investment opportunities? Not. It’s not easy, there are always huge risks and of course there will be inflation.”

Munger also mentioned buying government bonds as a hedge against inflation.

“We bought utility bonds to get a nine or 10 percent yield. What about inflation, you might ask? Well, government bonds yield 3%, so 9% isn’t bad. We don’t have one size fits all.”

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This article Charlie Munger Predicted Rising Inflation Was ‘Inevitable’ Due To Democracies And How To Protect Against It – ‘Most People Will Suffer’ originally appeared on Benzinga.com