Canada's largest pension fund said policy measures around the globe to address the COVID-19 pandemic could fuel inflation after years of underinflation while also spurring a rebound in employment and business investment.
"We're keeping an eye on this because central banks have adjusted frameworks," Mark Machin, chief executive officer of Canada Pension Plan Investment Board, said in an interview Tuesday. "There is also the risk of a wall of money in savings accounts — $13 trillion in U.S. banks alone — moving, and that transfer can cause inflation."
Mr. Machin also sees the synchronized global economic upswing potentially creating further upward price pressure on commodities.
"Emerging markets are where you're going to see a massive pickup in demand. And we're very familiar with the infrastructure bottlenecks that exists and some economies, especially in the Asian emerging markets, dependence on imports and commodities," Mr. Machin said.
Another factor that could generate inflation is an uptick in infrastructure spending as a form of economic stimulus, he said.
"These things are happening because people are building the right things in the right way and there's lots of investment happening, but you could flow through into some elements of fueling inflation, which will create challenges for some emerging markets and central banks over the time," Mr. Machin said.
The global economic slump caused by the COVID-19 pandemic has had a disinflationary effect, capping a decade in which the central banks of most advanced economies had already fallen short of their inflation targets. Now, the pension fund will be watching to see whether adjustments made by the central banks will spur more robust inflation as economies recover, CPPIB said in its "Thinking Ahead" report published Monday.