Tangen (NBIM): Rising prices of many commodities are a strong inflation scare. Rate cuts will not go as expected

The head of the world’s largest pension fund Norges Bank Investment Management (NBIM) Nicolai Tangen expressed considerable concern about the further development of the growth rally in many commodities and the effect of this growth on the development of general price growth and on the development of the inflation outlook.

The main index tracking American commodity prices, the S&P GSCI, has already strengthened by around 9% since the beginning of the year. Oil and copper are already 13% more expensive since the beginning of the year, gold has repeatedly climbed to new historical highs.

According to Tangen, it is clear that the rise in commodity prices will also be reflected in the development of the prices of end products over time. Tangen believes that central banks will have a hard time in such an environment in their pursuit of reducing inflation towards their long-term goals. Several extremely strong factors work against their efforts. In addition to the already mentioned rise in the prices of many commodities, there are also unusually high geopolitical risks, negative climate effects affecting the harvest of key crops, and wage inflation is also higher than originally estimated.

All this leads the fund to believe that rate cuts in the world will take place more slowly or on a smaller scale compared to the original market estimates from the beginning of this year. According to Tangen, it is quite a surprise for him that the markets take such developments quite calmly. The delay in rate cuts should be a relatively negative signal.

NBIM manages assets in a total volume of approximately NOK 17.7 trillion = approximately USD 1.6 trillion. Its portfolio currently includes shares of approximately 8,800 companies from 70 countries, which overall ranks the fund at the top on a global scale.