This article is , provided by PBY Capital

Panel: Inflation will remain the focal point in 2023

The Canadian Pension and Benefits Institute in Montreal hosted an expert panel on economic forecasts for the year ahead

The past year presented a slew of challenges for investors to adjust to, from climbing inflation rates to unpredictable world events and subsequently changing consumer trends. Ahead of a 2023 filled with uncertainty, staying adaptable and informed on inflation trends will be a key consideration for investors.

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That was the message from three financial experts, who weighed in on the challenges and opportunities of the upcoming year at a Canadian Pension and Benefits Institute event. The live panel, moderated by Meriem Mehdaoui, managing director at PBY Capital, included Jovanka Charbonneau, senior economist at Business Development Bank Of Canada (BDC); Nelson Lam, senior vice president at Trans-Canada Capital; and Yanick Desnoyers, vice president and chief economist at Addenda Capital.

Around 50 guests from diverse firms attended the panel, which was held at Centre Mont-Royal in Montreal’s downtown core.

To kick off the talk, Mehdaoui asked panellists to reflect on the past year’s economic trends and how they envision their effects trickling into 2023. The serious uptick in inflation last year was a focal point for the panellists despite this January’s economic activity hinting at a better outlook.

“We are not done hearing about inflation, and it will likely take a positive turn,” said Charbonneau.

Charbonneau added that the rates for consumer goods shown in the news do not reflect the entire picture; for example, the numbers on durable goods demonstrate how tightening up economic policies is working.

The other speakers concurred with Desnoyer’s evaluation of the main factors causing economic turbulence: Global supply-chain disruptions due to the Ukraine-Russia war, rising inflation rates, and higher interest rates.

Salary inflation is creating challenges for employers as they grapple with a broader staffing crisis amid a national worker shortage and high turnover rates. According to Charbonneau, companies are focused on keeping employees as they are getting harder to replace—salary inflation might be helpful in retaining talent and filling the nearly 900,000 jobs currently open.

The conversation turned to tackling inflation, which panellists agreed is chronically affecting businesses and working people alike. Their viewpoints diverged, however, on how exactly the Canadian economy will get things back on track.

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Inflation comes in waves, and the first one has passed, according to Lam. However, he explained that the higher inflation rates get, the longer it takes an economy to bring these rates to heel.

To mitigate the effects of high inflation over the next few years, Desnoyers sees two possible ways forward for the Canadian economy: a soft landing, or a recession, which would likely occur next year.

On the other hand, Charbonneau was optimistic that should a recession occur, it will be relatively weak.

“Inflation can be a self-fulfilling prophecy and the risk is tied to anticipation,” Charbonneau said. If consumers and businesses expect a five per cent long-term inflation rate, then workers will demand raises and businesses will price up goods by the same amount, creating an additional inflation effect. According to Charbonneau, the central bank should temper Canadian concerns about inflation rates to bring them back down.

Panellists described how increased volatility and a tense climate over the past several years have become the new normal, and now recessions are less frequent but more severe. Both factors are taking a toll on long-term interest rates.

And when it comes to long-term investments such as pension plans and retirement savings, investors who did not see the height of inflation coming were hit the hardest. As for stocks and bonds, sticking to a 60/40 portfolio cost many in 2022. Desnoyers encouraged investors to readjust these holdings in the wake of rapid inflation.

“Economic growth drives corporate profits which drive the stock market,” said Desnoyers. “Extreme inflation, interest rates, and monetary policy all have an impact on the market.”

He added that treating all investments as susceptible to these interconnected forces is the best way to avoid losses.

Whether it concerned inflation rates, employee relations, or market forces, the panellists agreed that this coming year will not be as mired in crisis as the last. What remains crucial is paying close attention to fluctuating global trends, such as shifts to renewable energy, and planning ahead to reduce potential impacts on key holdings.

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This story was created by Canadian Family Offices’ commercial content division, on behalf of PBY Capital Limited, which is a member and content provider of this publication.

PBY Capital Limited is registered as an exempt market dealer and an investment fund manager with Canadian provincial securities regulatory authorities, servicing family offices and their professionals. For more information, visit: www.pbycapital.com.