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The funded position for an average Canadian defined benefit pension plan improved slightly during May, with a solvency of 108.2 per cent, according to a new report by LifeWorks Inc. (formerly Morneau Shepell Ltd.)

On an accounting basis, it found expenses for the average pension plan had dropped precipitously since the beginning of 2021, at 73.6 per cent. And asset returns for an average plan were slightly above one per cent in May and year to date.

A dip in real returns for bonds for the month implied an increased expectation of inflation in the long term, noted the report. Indeed, real return bond yields dropped 0.19 per cent, while Government of Canada dipped by just 0.05 percent during the period.

Read: Institutional investors facing inflation risk, ESG opportunities in 2021

Anxiety around inflation increased in May with the release of April’s consumer price index statistics for Canada and the U.S.

In its summary of the CPI for April 2021, Statistics Canada reported that prices on consumer goods had reached 3.4 per cent over the previous year — the biggest jump since May 2011. In the U.S., the Bureau of Labor Statistics revealed a 4.2 per cent rise in CPI during the same period — the largest spike since September of 2008.

In his analysis of May’s bond figures, Marc Drolet, principal of the investment and risk team at LifeWorks, described the declining returns as an indication that the market is on “inflation watch.”

“The April reading in Canada was largely driven by increases in gasoline prices compared to April 2020 and so, while this particular effect should be temporary, the potential for persistent higher inflation remains as the global economy starts to open up, employment levels.”

Read: Institutional investors eyeing increasing interest rates, looming inflation: webinar

These inflationary concerns were echoed in the Canadian edition of the latest FTSE Russell fixed income insight report.

In its analysis of the macro backdrop of the Canadian, U.S. and U.K. economies, the report noted the three countries’ economic recoveries from the global pandemic were outpacing the rest of the world — as was their inflationary breakeven points.

The report also cautioned against inferring too much from the available data. “Base effects, temporary supply bottlenecks and a history of false dawns are muddying the inflation outlook.”

Read: Institutional investors should remain focused on the long term amid tumultuous times: expert