‘A real wildcard’: World’s largest wealth fund issues inflation warning on hot commodity markets

The
chief
executive
of
the
world’s
largest
wealth
fund
says
there
are
many
wild
cards
in
financial
markets
right
now,
but
the “big
worry”
for
investors
is
what
a
commodities
rally
could
mean
for
the
inflation
outlook.

Nicolai
Tangen,
CEO
of
the
Norges
Bank
Investment
Management
(NBIM),
told
CNBC’s “Squawk
Box
Europe”
on
Tuesday
that
soaring
energy
and
raw
material
prices
could
prove
to
be
a
significant
headache
for
major
central
banks
as
they
continue
to
fight
inflation.

As
of
Tuesday
afternoon,
the


S&P
GSCI,
a
benchmark
index
that
tracks
the
performance
of
global
commodities,
had
jumped
9%
since
the
start
of
the
year,
outpacing
the
broad


S&P
500
index.

Oil
and

copper
prices
have
climbed
around
13%,
respectively,
year-to-date,
while

gold
has
repeatedly
notched
fresh
record
highs
in
recent
months.

Asked
whether
he
had
any
concerns
about
hot
commodity
markets,
NBIM’s
Tangen
replied, “Yes,
the
big
worry
is
just
what
that
could
mean
for
inflation
right?”

He
added, “So,
if
energy
and
raw
material
prices
continue
to
move
up,
that
is
going
to
feed
through
to
end-product
prices,
which
are
going
to
be
higher.
And
that
could
be
the
real
wildcard
when
it
comes
to
inflation
expectation.”

NBIM
manages
the
so-called
Norwegian
Government
Pension
Fund
Global.
The world’s
largest
sovereign
wealth
fund,
which
was
valued
at
17.7
trillion
kroner
($1.6
trillion)
at
the
end
of
March,
was
established
in
the
1990s
to
invest
the
surplus
revenues
of
Norway’s
oil
and
gas
sector.

To
date,
the
fund
has
put
money
in
more
than
8,800
companies
in
over
70
countries
around
the
world,
making
it
one
of
the
largest
investors
across
the
globe.

European
Central
Bank
President
Christine
Lagarde
had
also
signaled
the
impact
of
commodity
prices
last
week,
in
the
broader
context
of
the
institutions
next
monetary
policy
steps.
She
said
the
central
bank
remains
on
course
to
cut
rates,
barring
any
major
shocks
—
but
stressed
that
the
ECB
would
need
to
be “extremely
attentive”
to
commodity
price
movements.

“Clearly
on
energy
and
on
food,
it
has
a
direct
and
rapid
impact,”
Lagarde
said.

Euro
zone
inflation

slowed
by
more
than
expected
to
2.4%
March,
bolstering
expectations
of
a
near-term
rate
cut.
Market
pricing
for
interest
rate
cuts,
which
has
been

highly
volatile
in
recent
weeks,
now
also
points
to
the
ECB
appearing
set
to
ease
monetary
policy
before
the
U.S.
Federal
Reserve.

With
most
readings
putting
U.S.
inflation
at
around
3%
and
not
moving
appreciably
for
several
months,
traders
on
Tuesday
afternoon
were
pricing
in
a
13%
chance
of
a
U.S.
rate
cut
in
June,
according
to
the
CME
Group’s

FedWatch
tool.
That’s
down
from

nearly
70%
last
month.

Tangen
said
Norway’s
wealth
fund
continued
to
believe
it
would
be “tough”
for
central
banks
to
get
inflation
down
toward
target
levels,
and
major
central
banks
would
move
differently,
depending
on
local
inflationary
pressures.

Acknowledging
multiple
factors
that
now
underpin
inflation,
Tangen
said, “You
have
some
of
the
geopolitical
tensions,
you
have

near-shoring,
you
have
the
climate
effect
on
food
through
the
world’s
harvest,
you’ve
got
some
changes
in
trading
routes
and
so
on,
and
wage
inflation
is
also
higher
than
perhaps
we
had
expected.”

He
added, “We
are
expecting
fewer
rate
cuts
than
the
market
did,
of
course,
earlier
in
the
year.
I
have
to
say
my
surprise
is
that
the
market
has
taken
it
so
well.
I
would
have
expected
the
market
to
have
reacted
more
negatively
to
this
postponement
of
interest
rate
cuts.”

—
CNBC’s
Jeff
Cox
contributed
to
this
report.