Morning Market Brief: August 23, 2023

Former Bank of Canada Governor weighs in on inflation?

In the first half of 2023, Canada’s robust economic growth surprised some analysts. Former Bank of Canada (BoC) Governor Stephen Poloz attributed this strength to population growth and smoother supply-chain networks after pandemic-related disruptions. Poloz also believes inflation could cool at a quicker rate than expected.?

• Canadian households sensitive to rising interest rates. Given record high levels of debt, Poloz believes this sensitivity could be higher than prior to the 2008 financial crisis. The impact of higher borrowing costs might still take time to be reflected in the latest data releases.
• Factors beyond strong demand impacting the jobs market. A substantial shift in the Canadian workforce could be underway with the younger members of the “baby boomer” generation closing in on retirement.
• Artificial intelligence has potential to boost productivity. This could be another factor along with data-sharing trends that helps to curb inflation, according to Poloz.
• BoC doesn’t expect inflation to fall to its 2% target until the latter half of 2025. Despite a more optimistic stance on inflation than the BoC’s current policymakers, Poloz emphasized the importance for businesses and households to prepare for a variety of outcomes.

Some of the messaging from central banks in North America could be clarified in the coming days and weeks. In constructing your portfolio, it might be prudent to consider an appropriate mix of equities and bonds to safeguard against fluctuations. Investment-grade corporate bonds could be considered attractive given higher yields and relative stability.

At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.