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Climate change contributing to inflation

The head of Norway's mammoth sovereign wealth fund said Wednesday it would be "quite difficult" to bring down global inflation due to persistent upward pressure brought on by climate change and global market trends.

But a positive development in the world is artificial intelligence, which will enable us to concentrate on the “most fun” tasks, Nicolai Tangen, the chief executive of Norges Bank Investment Management which manages the fund, said as he addressed current economic trends while presenting the fund’s half-yearly report.

Central banks around the world have struggled to rein in inflation despite numerous interest rate hikes since the end of the Covid pandemic.

“We think it could be quite difficult to bring down global inflation,” Tangen said.

Manufacturing costs have been rising amid a global push for “nearshoring”, where goods are produced closer to their consumers, Tangen said.

In addition to that trend, “the new thing here is the climate effects, that is to say, the link between the climate and inflation,” he said, pointing to rising food costs.

“More expensive olive oil, potatoes, beef, all these things and that fuels inflation,” he said. “What’s new is that (the climate) is also affecting productivity.”

Tangen cited a summer “in Europe this year so hot that you can’t work in the middle of the day”, as well as increasingly extreme weather events that dissuade tourists.

“And then there’s nothing going on in the stores… We shut down parts of society during certain periods due to the climate,” he said.

July 2023, marked by heatwaves and fires around the world, was the hottest month ever registered on Earth, according to the EU’s climate observatory Copernicus.

Three-day week?

Tangen was presenting half-year results for the Government Pension Fund Global, the world’s largest and valued at 15.3 trillion kroner ($1.46 trillion) at the end of June.

The fund, paradoxically fuelled by the Norwegian state’s oil and gas revenues, has made climate change one of its main priorities, making demands on the companies in which it invests.

The fund invests primarily in stocks but also in bonds and real estate around the world.

With shares in more than 9,000 companies, the fund controls around 1.5 percent of the world’s market capitalisation.

It earned 1.5 billion kroner ($143 billion) in the first half of the year, boosted by the strong financial market, in particular tech stocks with investors buoyed by developments in artificial intelligence.

The sector alone contributed 788 billion kroner to the fund’s results, thanks to companies like Apple, which accounted for 135 billion kroner, Microsoft (114 billion kroner) and Nvidia (84 billion kroner).

Artificial intelligence “will change everything”, Tangen said.

“We’ll become much more efficient, we won’t have to do lots of boring tasks and we’ll be able to concentrate on the ones that are most fun.”

“And maybe we won’t need to work as much? Why work five days (a week)? … Maybe we’ll be able to work three days?”, he said, extolling the virtues of picking berries in the mountains on a Friday.

The Norwegian fund on Wednesday published a document urging companies to make the most of the opportunities presented by AI in a responsible manner.

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