QUICK: Warren, you couldn't hear what Steve had just been talking about, but he did say that one point coming out of Jackson Hole is that this rise we've seen again in the dollar--rise that we've seen again in oil is clear evidence that the Fed does not have everything under control when it comes to inflation. What do you think about that?

BUFFETT: Well, the Fed doesn't have--but even without that fact, I mean, the Fed's got real problems with inflation and have got it in commodity prices. I--every business we have, but some of them in a dramatic way, are getting cost increases thrown at us. I just was looking at the reports for July on certain businesses, and we're trying to push through price increases ourselves. And our margins are getting squeezed in certain major businesses simply because we don't get price increases as fast as we're getting them. But we're pushing up prices.

QUICK: So you see it going right through?  Which...

BUFFETT: Sure it's going to go through.

QUICK: Which businesses are the toughest to get them through?

BUFFETT: Well, it's tough, and we're in various things connected with residential housing.

QUICK: Right.

BUFFETT: Take carpet, for example...

QUICK: Right.

BUFFETT: ...or insulation. These things all have a huge energy base to them. I mean, carpet is oil, and weekly we get these price increases thrown at us and they're usually effective immediately, whereas we have trouble with our retailers getting them to say, well, 30 days from now or 60 days from now. And we don't want to--we don't like telling a retailer that you can have your price increase tomorrow. So there have been increase after increase in prices and our margins are still going down, and that's happening--if you take brick, that's natural gas. I mean, there's all kinds of areas where it's happening. Food it's just--it's pouring through.

QUICK: But does that mean you were not surprised by that very hot PPI number that we just...

BUFFETT: No, I wasn't surprised at all.

QUICK: You weren't.

BUFFETT: No. I--in fact, if anything I feel that the CPI has been sort of understating what's been going on. We are in an--we are in a economy that is going to see significant--and is seeing significant inflation. The only--the only people who aren't getting much inflation are blue-collar workers and the middle class in terms of their income. So they are getting squeezed like crazy.

QUICK: Would it--does that mean you expect to see more PPI increases and eventually see that showing up in the CPI as well?

BUFFETT: It has to, but--yeah. They--the cost of living is going up and, you know, unfortunately, the prices of houses going down and there's--there are problems in the economy. We will get through this. But as Paul Volcker mentioned in the movie last night, the problem with inflation is if it gets ignited, it gets very hard to put at a--at a--at a point. I mean, Paul Volcker had to go in with a 2x4 to the economy in the early '80s and we had inflationary expectations built in to a terrific degree.

QUICK: Mm-hmm.

BUFFETT: And if that happens again, we've got lots of troubles.

QUICK: Warren, we teased earlier that we were going to mention something nobody had heard about just yet. We know that you're a huge baseball fan, but you also have a big day coming up. What is that big day?

BUFFETT: It's a--it's a huge day for all of baseball, actually. On September 9th in Fenway Park I will be starting. And--but more important than that--because I've thrown out the first pitch other times--but this time I brought my secret weapon.

John Sleezer / Kansas City Star Warren Buffett throws out the ceremonial first pitch before a game on June 11, 2008 between the Kansas City Royals and the Texas Rangers

QUICK: Which is?

BUFFETT: Jack Welch is going to be my catcher.

QUICK: Jack Welch is your catcher.

BUFFETT: Yeah. I mean, can you imagine being able to pitch with Jack calling the pitches? And, I mean, anything he calls for. I've got--I've got a fastball, a curve, a sinker, you know, a spitball, a knuckleball, a sidearm delivery. And if Jack calls for any pitch, including the ball that bounces four or five times before it gets to the plate, I'm going to throw it.

QUICK: You're going to throw exactly what he calls for.

BUFFETT: So if I--if that's the pitch, it's because Jack called it.

QUICK: All right, we'll all be watching that. That's coming up, again, you said September 9th.

BUFFETT: September 9th, right.

QUICK: OK. Folks, we still have a lot more to come this morning. You have not heard the last from Warren Buffett yet. We'll get much more on his holdings, what he's thinking about buying and selling, maybe. We'll also talk to him about the economy. We'll get to the election and much, much more. Plus, don't forget, Carl is live in Beijing as day 13 of the Olympics comes to an end. We are going for the gold this morning. This is a special split edition of SQUAWK BOX live from America's heartland and from China. It's all coming up when we come right back.

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