Mar 3, 2022 • 16M

Dawn Chorus: Fastest commodity price rises ever

Global commodity prices have risen 16% in a week, which is the biggest weekly rise in history and faster even than during the oil shocks of the 1970s; Coal prices double in a week; Wheat prices up 40%

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Bernard Hickey
Bernard Hickey and friends explore the political economy together.
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TLDR & TLDL: Russia’s invasion of Ukraine is turning into a geo-political and economic shock akin to the 1973 Yom Kippur war between Arab states and Israel that led to the OPEC oil embargo. That quadrupled oil prices to US$12/barrel in a year and was a major factor driving two decades of stagflation that was only broken by central banks hiking interest rates hard into double digits in the late 1980s.

Canadians protest over the failure of wage increases to keep up with inflation in 1979. Photo: Don Dutton/Toronto Star/Getty Images

Commodity prices ranging from oil and gas to wheat, coal and aluminium leapt again overnight, extending the gains for the week to the biggest in any one week in more than 52 years, including the oil crises of 1973 and 1979.

The war in Ukraine is obviously a humanitarian and enormously dangerous disaster for the world. But in some ways, this is good for Aotearoa-NZ’s economy, which will benefit from a solid currency and rising dairy, meat and aluminium prices. But it could prove a problem if the inflation breakout forces central banks to crunch expectations with much bigger and faster rate hikes than currently priced in to asset values, including share, bond and house prices. (See more on this epic week in the global political economy below the paywall fold.)

Elsewhere in the news this morning:

  • the Beijing-dominated Asian Infrastructure Investment Bank (AIIB) said overnight it was suspending all new deals with Russia and Belarus, suggesting China’s alliance isn’t quite the ‘no limits’ deal agreed before the Winter Olympics (FT-$$$);

  • Covid Modelling Aotearoa thinks as many as one in 10 people have Covid as fears grow the peak in hospitalisations due in a month or so could surpass hospital bed capacity (RNZ); and,

  • Carter Holt and Fletcher Building have denied price gouging in their submissions to the Commerce Commission’s building materials market study (NZ Herald-$$$).

Paid subscribers should look out later today for my weekly Ask Me Anything thread at midday and the invite for my weekly ‘hoon’ webinar on The Week That Was with Peter Bale running from 4pm to 5pm today. Paid subscribers can find the invite link below the fun things and in an invite email sent out shortly before 4pm.

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