FirstFT: World’s largest wealth fund warns ‘permanent’ inflation will hit returns

The world’s largest sovereign wealth fund has warned that investors face years of low returns as the surge in inflation becomes a permanent feature of the global economy.

Nicolai Tangen, chief executive of Norway’s $1.3tn oil fund, told the Financial Times he was “the team leader for team permanent” in the fierce debate over whether the jump in rates was transitory or a lasting threat.

Consumer price inflation is running at its highest level for more than two decades in the world’s big industrial economies, in particular in the US, where the annual pace of price growth hit 7 per cent in December, up from just 0.1 per cent in May 2020.

Tangen said the oil fund, which owns the equivalent of 1.5 per cent of every listed company in the world, thought inflation “could be stronger than what is generally expected” as the world experiences both high demand and lingering disruption to supply chains.

“How will it pan out? It hits bonds and shares at the same time . . . for the next few years, it will hit both” — Nicolai Tangen

How has inflation affected you or the country you live in? Tell us at firstft@ft.com. Thanks for reading FirstFT Europe/Africa. Here’s the rest of today’s news — Jennifer

Five more stories in the news

1. UK prepares to impose Russia sanctions Oligarchs with links to Vladimir Putin who have investments in the UK will be hit by tough sanctions if Russia invades Ukraine, British foreign secretary Liz Truss is set to tell the House of Commons today. Across the Atlantic, the US Senate is nearing its own deal on sanctions against Moscow.

• Go deeper: The Ukraine conflict has shone light on deepening ties between Beijing and Moscow. It has also presented the first foreign policy challenge to Germany’s new government.

• Explainer: Will Russia be cut off from Swift, the international payments network, if it invades Ukraine? Here’s why it is so important.

2. Portugal’s ruling Socialists win snap election The country’s centre-left ruling Socialist party led by António Costa, prime minister, won a parliamentary election on Sunday with an absolute majority after voters penalised the far-left parties that triggered the snap poll.

3. UK devolved governments attacks post-Brexit plan The devolved administrations have warned that Boris Johnson’s plans, set to be unveiled today, to cut £1bn of red tape for business by removing legacy EU laws risked driving a “coach and horses” through the country’s constitutional settlement.

• Separately, the government will this week seek to finalise measures to help millions of low-income UK households with a looming energy bill increase.

4. Zambia’s president vows not to favour Chinese creditors Hakainde Hichilema has promised not to favour Chinese creditors over western bondholders as he seeks a resolution to the nation’s debt crisis, which is seen as a test case of whether Beijing will accept losses from a surge in loans to Africa in the past decade.

5. UK homeowners secure £800bn windfall Homeowners notched more than £800bn in additional value to their properties last year on a combined basis, as strong buyer demand and government stimulus pushed average prices up more than 10 per cent, taking the total worth of housing stock to a record £8.4tn.

Keep up with the news throughout the day with Top Stories Today, a short-form audio digest of headlines. Find the latest episode here.

Coronavirus digest

• Young Britons who lost their jobs during the pandemic are far more likely than their peers who remained employed to be in insecure work, research showed.

• Winners are emerging in corporate America’s response to the supply chain crisis following a wave of spending on capacity and support for weaker vendors.

• Almost half of US Covid-19 hospitalisations this winter could have been avoided if it had matched vaccination coverage in leading European countries, FT analysis has found.

• China’s manufacturing and services activity edged close to a contraction in January as its zero-Covid strategy compounded a property-led slowdown. Hong Kong will reduce mandatory isolation for arrivals from 21 to 14 days.

• When can the world move on from the pandemic? Scientists and officials are locked in a debate over “pandemic versus endemic”.

• Opinion: Covid has revealed the limits of the state in controlling or understanding a powerful force of nature, writes Ruchir Sharma.

The day ahead

Boris Johnson visits eastern Europe The UK prime minister is set to visit the region as he considers offering Nato a deployment of another 900 troops to Estonia amid tensions in Ukraine. Johnson is also seeking talks with Vladimir Putin in the coming days.

GDP data Flash fourth-quarter gross domestic product figures are expected to show eurozone economic growth slowed because of Covid restrictions and supply chain disruptions, while Italy’s economy is thought to have grown more than expected. (FT, Bloomberg)

• More economic data: Germany will release preliminary consumer price index data for January, as inflation hits its highest rate in decades. The UK will release government deficit estimates, while Italy has monthly unemployment out.

Corporate earnings Quarterly results are out for Dutch telecommunications group KPN, Swiss bank UBS and Irish airline Ryanair. UK-based mining conglomerate Evraz releases a trading update.

What else we’re reading

Does the EBRD still finance freedom? The European Bank for Reconstruction and Development, whose total new investments in 2021 topped €10bn, is unique among multilateral development banks in placing a drive towards multi-party democracy at the heart of its mandate. That principle, however, is under mounting strain.

Amnesty row clouds Bloody Sunday anniversary The shooting 50 years ago this weekend went down in history as one of the worst atrocities in Northern Ireland’s three-decade Troubles. But London’s planned amnesty for all Troubles-era crimes has united unionists, nationalists and politicians in opposition as victims’ families fight for prosecutions.

The paradox that leads professionals into temptation The greater a manager’s sense of professionalism, the more likely they are to accept a gift or bribe, argues Andrew Hill. Worse, high-minded professionals may be more susceptible to unconscious bias towards gift-givers because they are convinced they know how to ignore their blandishments.

Air taxis: fantasy or realistic promise? Flying cars made a giant swoop forward in the past year, with a crowd of start-ups raising more than double the amount over the previous decade on the promise of making “urban air mobility” a reality. But will the exuberance evaporate?

Automation exacts a toll in inequality When humans compete with machines, wages go down and jobs go away. But in recent decades, something in this relationship began to break down. GDP growth in the US has slowed and inequality has risen. Rana Foroohar examines why.

Work & careers

If much of a workforce is only coming into the office two or three days a week, it makes for a lot of underused space. Enter the much-despised hot desk, with predictable results, writes Pilita Clark.