Charlie Munger Predicted Inflation Surge Was 'Inevitable' Because of Democracies and Told How to Protect Against It – 'Most People are Going to Suffer'

Charlie Munger passed away last year, but his broad outlook on life and decades of experience in the financial markets continue to guide millions worldwide. There is hardly a problem in the economic arena about which Munger didn't talk. As inflation remains a hot topic in America amid elevated costs of living, we decided to dig deeper into Charlie Munger's archives of his letters to shareholders and transcripts of his speeches to see what he predicted about the phenomenon.

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‘More Inflation is Inevitable' Over the Next 100 Years

During a Q&A session at a Daily Journal Corporation shareholder meeting in 2023, Charlie Munger was asked about the inflation crisis. Munger made some prescient 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’ll have more inflation."

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

According to 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 replied that it was "pretty likely" that we'd have inflation over the next 50 to 100 years. However, he said that inflation did not halt civilization's success. 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 has done wonderfully. Many of the people who were the Jeremiahs of that age have been proven wrong; the country could stand as much inflation as it got."

‘Most People Are Going to Suffer' Due to Inflation

In 2022, while speaking at an event for the Singleton Foundation for Financial Literacy and Entrepreneurship, Munger predicted that life would become harder for common people because of inflation.

 "I don't think most people are going to do really well with inflation. I think most people are going to be way better off, at least the people that have any money will be way better off, if there weren't any inflation. And so it's just a question of how most of them aren't going to profit. Most people are going to suffer."

The Relationship Between Democratic Governments and Inflation According to Charlie Munger

During his talk, Munger said that he believed inflation would rise because "democratically elected politicians" would "eventually" print too much money.

Whitney Tilson, the Editor of Stansberry Investment Advisory and founder of Empire Financial Research, has been a close follower of Charlie Munger's life. He's compiled vast archives of transcripts of Charlie Munger's speeches, dating back to when no recordings were allowed during Berkshire Hathaway's meetings.

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

"I think democracies are prone to inflation because politicians will naturally spend [excessively] – they have the power to print money and will use money to get votes."

 Munger said that while inflation continues to tick up in the long term, it increases more under democracies. He said there was "no inflation" in the U.S. from 1860 through 1914, which saw "strong growth."

 "I don't think we'll get deflation. The bias is way more pro-inflation than it was between 1860-1914. But I don't think other forms of government will necessarily do better. Some of the worst excesses occur under tyrannies," Munger said.

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Munger Believed There Is No ‘Perfect Correlation' Between Inflation and Interest Rates

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

"I think there's some relation, but it's complex and not easily quantifiable."

High-Quality Businesses During Inflation

Charlie Munger thought companies making 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 tools company that Warren Buffett's Berkshire acquired in 2006.

"Iscar is so good at delivering good products, it is hard for me to imagine them not selling more to customers who are making more money."

How to Protect Against Inflation According to Charlie Munger

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

"I remember 2c stamps, 5c hamburgers, and the minimum wage of 30c/hr. In 80 years since those prices, there has been lots of inflation. Did it ruin investment opportunities? No. It isn't 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 yield nine or 10%. What about inflation, you might ask? Well, government bonds are yielding 3%, so 9% isn't bad. We don't have one size fits all."

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