HSBC says immigrants have a major impact on the housing market by pushing rents higher, given that they typically rent when they first arrive in a new country.
With Australia’s migrant intake for the year to June expected to be around 400,000, more than double the average rate in the decade before the pandemic, it is expected this surge in migration will have a big impact on the rental component of the June quarter inflation figures.
In turn, HSBC expects the Reserve Bank of Australia (RBA) to lift the official cash rate by 0.25% next week.
“More migrants drives both an increase in demand [in] the economy – for housing and infrastructure as well as goods and services – and boosts supply – particularly that of labour”, HSBC chief economist Paul Bloxham wrote in the report.
“The typical net effect on inflation is modestly to the upside in the short run, and a more neutral effect over time”.
“Standard economic models have struggled with some of the unusual effects of the pandemic”.
“The surge in inward migration has also supported housing prices, which have risen recently, despite standard housing price models suggesting that the magnitude of interest rate rises to date should be seeing further housing price falls”.
“With inflation expected to still be well above the RBA’s target [of 2% to 3%], and the labour market still tight, we see the argument for a hike as likely to be stronger than the argument for a hold in August”, Bloxham said.
Property rents are the single biggest component of the consumer price index (CPI).
Thus, Albo’s extreme immigration is now a major driver of Australia’s inflation and will require the RBA to hold rates higher for longer.
