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Inflation will (probably?) fall in 2023

Commentary

To close out the year, we’ve asked our contributors and staff to make a prediction about 2023. You would think, after last year, that we’d have learned our lesson about making predictions, but we couldn’t resist. Feel free to save these if you want to embarrass us with them later.


Yes, we’re making the inflation prediction again

By Trevor Tombe

It is said that the definition of insanity is doing the same thing over and over again and expecting different results.

Well, for my 2023 prediction, I’m going to do just that.

Last year, I predicted that “by late 2022, Canada’s inflation rate will ease back into a normal range of between 1 to 3 percent.” Obviously, I missed the mark by a very wide margin. By late 2022, inflation was close to 7 percent—more than triple Canada’s target.

Despite this miss, I predict that by the end of 2023 inflation will fall close to normal.

How can I say this after being so wrong last year? There are several reasons.

First, energy prices have fallen. Oil prices in mid-December were roughly $75 per barrel, down from well over $110 per barrel in the summer. This matters. Roughly speaking, each $10 per barrel change leads to a 0.3 to 0.4 percentage point change in Canada’s inflation rate.

Second, many goods are sensitive to energy prices. Lower energy prices will lower production costs and therefore prices throughout the economy. The World Bank, for example, expects agricultural and fertilizer prices to fall in 2023.

Third, supply chain bottlenecks have eased. A lot. Global freight rates were by November down roughly 80 percent from their Fall 2021 peak. This lowers shipping costs, product prices, and should also help address many critical shortages.

Fourth, monetary policy has tightened significantly. The Bank of Canada’s target rate was 4.25 percent in December, up sharply from 0.25 percent last year. This increase will lower consumer spending, easing demand and therefore prices. This also lowers home prices, as we’re seeing in many markets.

Finally, and most encouragingly, inflation pressures have already eased. Two core measures of inflation, for example, have averaged less than 3.5 percent since August. If this encouraging trend continues, the headline inflation rate will gradually begin to fall.

How confident am I in this prediction? I’d bet $20 on it. But probably no more.

Economists in general (and myself in particular) are exceptionally bad at predicting future economic developments. This is especially so today. Whether you agree with my outlook or not, hopefully the reasons behind my prediction will help make sense of whatever 2023 has in store.

Crime will rise in 2023

By Karen Restoule

Canadians continue to face challenges due to poor economic, health, and social conditions caused in part by government policy response to the COVID-19 pandemic and in part by significant increases in cost of living. This has, in turn, increased pressure on Canadian families to meet the expenses of everyday life. Those living in low socioeconomic circumstances have especially been put to the test and are increasingly turning to high-risk means to make ends meet. And with the impending recession, financial pressures will mount giving way to a rise in crime throughout 2023.

Throughout 2022, media continued to report on the steady increase in shoplifting in grocery stores across Canada. While lower-end crime like in-store theft doesn’t always get reported to police, retailers across Canada confirmed they are struggling with a spike in retail crime and they’ve confirmed that shoplifting tends to rise during economic downturns. 

While the final 2022 statistics won’t be officially reported until late 2023, media reports throughout the past year have also been telling of a slight upward trend in violent crimes like break-ins, armed robberies, and violent crimes. This would align with crime data trends released by Statistics Canada in November 2022 showing the national crime rate increasing through 2021 with more than two million police-reported criminal incidents. This is 25,500 more incidents than were reported in 2020. Crimes of a violent nature increased by 5 percent in 2021, with homicide rates up by 3 percent from 2020 and marking the highest rate of homicides in Canada since 2005.

While violent crime remains relatively low in Canada, especially in comparison to our friends south of the border, its harmful impacts on society should not be ignored. A citizen determines their sense of safety based on the incidence of crime and violent crime in their community.

Canadians deserve to live in a country that prioritizes prosperity, safety, and well-being. It’s up to government to lead and create the circumstances for that. In the absence of thoughtful and serious interventions on fiscal and monetary policies, labour and employment, mental health and addictions, and public safety and justice, crime rates are likely to continue on an upward trend throughout the next year.  

2023 will see pushback on ‘woke-ism,’ a reckoning on trade with China and a Leafs Stanley Cup

Commentary

To close out the year, we’ve asked our contributors and staff to make a prediction about 2023. You would think, after last year, that we’d have learned our lesson about making predictions, but we couldn’t resist. Feel free to save these if you want to embarrass us with them later.


10 predictions about politics, trade, and the 2023 Stanley Cup

By Sean Speer

1. Federal politics will be marked by continuity in the coming year. We won’t have a federal election. Justin Trudeau will remain prime minister. And Deputy Prime Minister Chrystia Freeland will be passed over as NATO’s secretary general and therefore also stay in her role as federal finance minister.

2. There will however be changes at the provincial level. Most notably, the United Conservative Party will lose the Alberta election in May to the New Democrats along urban-rural lines. The outcome will not only put Danielle Smith’s leadership in jeopardy but also lead to renewed questions about the viability of the UCP as a stable and united party.

3. Pierre Poilievre will continue to advance his main messages about freedom and gatekeepers but we’ll also start to see him position himself and the party as more firmly opposed to the rise of so-called “wokeism” within companies and on university campuses. A greater emphasis on these issues will be mostly motivated by the Legault government’s positioning in Quebec as well as the success of Republicans such as Florida Governor Ron DeSantis and Virginia Governor Glenn Youngkin in pushing back against its excesses.

4. The Legault government will also be the national leader on health-care reform in 2023. We’ll see growing progress in Quebec on incorporating private delivery into the Medicare model to address its pandemic-induced surgical backlogs. That these reforms will be achieved mostly within the single-payer model will contribute to growing support for further private (or non-profit) involvement in health-care systems across the country. Health-care reform, in other words, will come in the form of incremental improvements rather than a big bang but 2023 will be a key year along this gradual path.

5. The Ford government in Ontario will continue to lack a clear policy agenda or consistent sense of its own self. The result will be its usual mix of chaos, frequent policy reversals, and rare yet occasional wins. The one clear exception, however, will be Monte McNaughton, the minister of labour, immigration, training and skills development, who will continue to advance an innovative and exciting policy agenda rooted in a clear understanding of the so-called “political realignment.” The coming year will cement McNaughton’s status as the most interesting Conservative politician in the country.

6. The Trudeau government’s 2023 budget will do what its budgets have done since it was first elected: it will spend most of any revenue gains that it records and still aim to present itself as prudent and disciplined. The parliamentary press gallery will once again fall for it.

7. Claims about Twitter’s decline under Elon Musk’s leadership will be proven wrong. The company will grow in 2023 both in terms of its revenues but also its dominant place in our culture and politics.

8. The West’s relationship with China will continue to devolve into two economic and geopolitical camps in the coming year. In particular, we’ll see growing numbers of Western firms abandon their ambitions in the Chinese market in the face of growing expectations that they must choose sides. Former Google CEO Eric Schmidt’s recent call that the U.S. has a “core interest in making sure that these [platform] technologies are designed, built, field and governed by democracies” will help to hasten this trend.

9. This won’t be the year that machine learning and artificial intelligence renders me professionally obsolete. But we’ll continue to see major progress in the abilities and applications of ChatGPT and other-related technologies to augment and disrupt a wide range of sectors and professional functions. The coming year will represent something of an eventual pivot point between the pre-ChatGPT and post-ChatGPT worlds—similar to the mid-1990s when I logged onto the internet for the first time.

10. The Toronto Maple Leafs will win the Stanley Cup for the first time in 56 years. I’ll have to take my kids to the parade since there’s a good chance that there won’t be another one until they’re close to retirement or replaced by robots.