Last week Michele Bullock the RBA Governor was asked a good question about how high migration might impact inflation. But her answer was well, weird, as she tried to trade off pressure on the housing market from higher demand driven rent rises against supplying more workers to meet business demand (and implicitly increasing economic activity).
Treasurer Jim Chalmers, Speaking at the National Press Club on Wednesday explained that Tuesdays Budget forecast of headline CPI inflation falling to 2.75% by the end of Financial Year 2024-25 (not I January as I noted some reporting claimed), was predicated on at least in part the government cutting net overseas migration.
“We’re seeing a substantial moderation in inflation in the forecasts and in the last couple of years as well, and that is largely because of how we’re managing the budget but it will also be increasingly about how we’re managing the population as well”, Chalmers said.
Right, so it must also be true that if lower migration will ease inflation, then high migration will drive inflation higher.
Then we got Opposition Leader Peter Dutton’s policy as part of his budget response. He promised that a Coalition government would drastically slash migration as its main way of freeing up more than 100,000 homes over five years. A Dutton government would reduce Australia’s permanent migration program by a quarter – from 185,000 to 140,000 for the first two years “in recognition of the urgency of this crisis”, Dutton said.
Treasurer Jim Chalmers has described the opposition leader’s budget reply proposing migration cuts as an “unhinged and risky rant”.
But again, it’s a battle of announcables, with numbers being banded about. But my take is that neither side of politics are really wanting to take this on seriously, despite the direct link to higher inflation.
In both cases, this is more of policy announcements to try and win an election than nation building policy reform, which is needed for both migration and the gas market.
The net result will be higher inflation for longer, requiring higher interest rates than otherwise needed.
