The deflation of ‘greenflation’

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Narratives are funny things. When they’re strong almost everything seems to strengthen them further, and then all of a sudden they collapse under the weight of accumulated contrarian evidence.

Inflation and “greenflation” is a good example. Only a year ago, combatting climate change was widely expected to pour more fuel on runaway inflation. And it wasn’t just the usual doom-mongers. Even the ECB was taking the threat seriously.

Now, this is obviously not a wholesale repudiation of the whole greenflation narrative, but take a look at the recent price action in lithium – one of the most popular supposed greenflation drivers.

These charts are from an interesting recent Goldman Sachs report on lithium, which is both a kind of victory lap – the green lines above are braggingly showing Goldman’s own unchanged forecasts over the period – and a prediction that prices have further to fall.

This is notable because electric vehicles (the main source of lithium demand) continue to be produced and sell like hotcakes. But supply chains are less messed-up than they were, and actual supply continues to grow, Goldman notes. You can read the full report here.

This has had ripple effects through the lithium ecosystem. For example, EV lithium-ion battery prices have never been lower, and the shares of various companies linked to the commodity have slumped — SQM, one of the biggest lithium miners in the world, has roughly halved in value this year.

Lithium was obviously just one facet to the greenflation narrative that was once so dominant. And maybe prices will recover if EV demand continues to soar. But we thought it was interesting enough to share.