I’m not in the runaway inflation camp: David Rosenberg
Canada’s top two insurers are staking out opposite sides in the debate over inflation.
Manulife Financial Corp. expects rising prices to persist and prompt interest-rate increases in the middle of next year, while Sun Life Financial Inc. sees inflation fading and central banks remaining more accommodating.
“It’s not just transitory,” Manulife Chief Executive Officer Roy Gori said Wednesday in an interview. “We are going to see pressure on more longer-term inflation.”
Gori said price increases are being driven by the “very aggressive” and “appropriate” fiscal and monetary support that governments and central banks have deployed over the last 18 months to help people through the economic disruption of the pandemic. He expects central banks to begin tapering asset purchases, as the Federal Reserve signaled on Wednesday, and rate hikes in the second half of next year.
“We’re at a state now where economic growth is solid, consumer liquidity is very high and demand is very high and that’s translating into both supply-driven inflation as well as demand-driven inflation,” he said. “We’re going to start to see the need to modify fiscal and monetary policy in light of that outlook.”
Sun Life CEO Kevin Strain meanwhile said inflation is due more to supply-chain problems caused by COVID.
“Longer-term, inflation will come back toward where it’s been,” Strain said in an interview. “I believe that what you see is a spike, but that spike is more related to the supply-chain disruption.”
Central banks and governments that financed COVID aid with deficits may be more tolerant of inflation and won’t act as strongly to bring it down, he said.
“Federal governments, provincial governments, state governments have been running deficits related to COVID so there is a lot of incentive for governments to have a little bit of inflation come through,” Strain said. “What I hear is central banks more willing to let some inflation come through and continue to keep interest rates on the lower side.”
Both insurers reported third-quarter results Wednesday. Manulife’s net income fell from a year ago as the Asian business was slowed by a fresh round of COVID-related lockdowns. At Sun Life, net income rose as clients of its asset-management business flocked to alternative investments. Both insurers are based in Toronto.
The executives agreed that higher interest rates would help earnings in their core insurance businesses, and said their alternative-asset management units will be key to weathering an extended period of lower rates.