Economic Uncertainty + Increasing Consumer Conservatism = Challenging Times for Consumer Discretionary Companies
Inflation has risen to a level not seen in Canada or the U.S. for 30 years, resulting in considerable economic uncertainty. While the effects of inflation on consumer discretionary companies have been largely mitigated thus far, thanks to the post-pandemic reopening and pent-up consumer demand, we believe the brunt of the aftereffects are yet to be seen. The negative recessionary forces of decreasing consumer real purchasing power and slowing economic activity are mounting, and the impact is just beginning to show. As such, we believe the financial performances—and consequently the credit risk profiles—of companies within this sector could be pressured, especially for participants with more elastic product offerings and less ability to pass on further price increases without experiencing declining volumes.
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