Climate change will keep inflation high, Norway oil fund chief warns

The global economy is already experiencing climate-driven inflation that will contribute to stubbornly high price rises and a long period of low investment returns, according to the head of Norway’s $1.3tn oil fund.

“Inflation is going to be tough to get down,” Nicolai Tangen, chief executive of the world’s largest sovereign wealth fund, said in an interview with the Financial Times on Tuesday.

Labour costs are already leaking into global price rises, but “we are seeing a climate impact” he added, pointing to rising prices for olive oil, potatoes and coffee as anecdotal signs that food costs could pump up inflation for years to come.

A heavy price tag for the green energy transition and a reversal of the globalisation that has held down manufacturing costs for decades are also part of the “mosaic”, he said.

Tangen, speaking ahead of the oil fund’s inaugural investment conference, said the investor was “absolutely” seeing signs of so-called greedflation, where companies pump up prices beyond the extent that their own price pressures would demand.

Tangen’s views are closely watched in financial markets as the oil fund on average owns 1.5 per cent of every listed stock in the world. The former hedge fund manager, who took over at the fund in 2020, has long warned of the persistence of inflation, cautioning that investor returns could be low for the next decade as prices and interest rates remain high.

He stressed in the interview that the wave of inflation that has already struck the financial system, and the aggressive interest rate increases by central banks to try to tame it, have exposed cracks in markets, particularly in the form of the implosion of Silicon Valley Bank and the fire sale of Credit Suisse last month.

He added that he thought the “worse of that is behind us” but warned that with $30tn of losses in global stocks and bonds last year there were still more losers to be revealed in the financial system.

Tangen said it was “difficult to see from the outside” which financial companies were in the worst shape but that the fund was working hard to strip out “rotten apple” businesses from its portfolio. “We have cranked up the efforts on weeding out these things,” he added.

The fund now employs four forensic accountants in that effort, along with the use of linguistics analysis and artificial intelligence, and that number was likely to rise.