The spreading inflationary consequences of war

<p>Kia ora,</p><p>Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news it is all about the spreading inflationary consequences of war.</p><p>But first up, <a href="https://www.commtrade.co.nz/" target="_blank"><strong>local carbon prices</strong></a> have been retreating recently. They ended last week down at NZ$78.50, a -10% drop in a week. In <a href="https://www.caixinglobal.com/2022-03-04/china-carbon-watch-block-trade-prices-hit-record-in-february-despite-subdued-trading-101850943.html" target="_blank"><strong>China</strong></a>, their fledgling carbon market now barely functions. The <a href="https://tradingeconomics.com/commodity/carbon" target="_blank"><strong>EU carbon price</strong></a> has fallen even more sharply, down -30% in a week to €66/tonne (NZ$105/tonne). The whole thing seems weird, given the record demand and prices for fossil fuels, and it calls into question whether these carbon market prices are giving useful climate signals. Given the dive in the EU price, holders of the NZUs may be facing steep losses here in coming weeks. Carbon market prices are responding to 'normal' financial market signals, and not climate or IPCC data.</p><p>We have been highlighting sharp rises in many commodity prices recently, and <a href="https://tradingeconomics.com/commodity/coal" target="_blank"><strong>coal</strong></a> hit another record high at the end of last week, as did <a href="https://tradingeconomics.com/commodity/aluminum" target="_blank"><strong>aluminium</strong></a>. This seems to be a daily achievement recently and we are inured to these rises, even if we know that they are building to cause serious long-term global inflation. Worse, for many commodities, inventories are low.</p><p>One to keep a special eye on is <a href="https://tradingeconomics.com/commodity/nickel" target="_blank"><strong>nickel</strong></a>, essential