Rookie RBA Governor Michele Bullock raised eyebrows at Wednesday’s Australian Business Economists dinner by challenging the widely accepted narrative regarding the correlation between immigration and inflation. Bullock’s remarks, while nuanced, suggest a more complex relationship between population growth and economic dynamics than previously thought.
RBA governor Bullock asserted that it was “not clear cut” whether the Albanese government’s record immigration program is solely responsible for the inflationary pressures witnessed, particularly in the housing market. Drawing attention to the surge in rents, she acknowledged the existence of a bottleneck in this sector but argued for a subtler understanding of the issue.
RBA governor responds
“What people often forget is that the increased population also adds to supply,” RBA governor Bullock stated. “Our judgment is that, yes, there is a bit of adding to inflation with pressures from demand, but at the same time, the increase in the population is adding the supply of labor, and that’s helping on the demand-supply imbalance in the labor market as well.”
Bullock’s assertion, if accurate, indirectly implies that the current immigration strategy negatively impacts local workers. While driving up housing costs, the influx of population appears to stifle wage growth, contributing to a complex web of economic challenges.
The latest RBA Statement of Monetary Policy further emphasizes this conundrum, forecasting that real wages will remain below their pre-pandemic levels for an extended period. The most significant impact, undoubtedly, is on renters, who find themselves grappling with falling real wages amid skyrocketing housing costs.
Implicit in Bullock’s statements is an acknowledgement that a recalibration of immigration policies could enhance economic equity. A lower immigration policy, she suggests, might alleviate pressure on rents while concurrently boosting real wages, with the most substantial benefits accruing to lower-income workers.
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