Westpac bank now predicts that record immigration will force governments to spend more money and delay much-needed interest rate cuts.
A record 547,300 migrants flooded into Australia in 2023, the highest number ever recorded in a calendar year.
He The population growth rate of 2.5 percent was also the highest since the early 1950s.
Pat Bustamante, senior economist at Westpac, said this rapid population growth would mean more government spending – at state and federal level – leading to more inflationary pressures.
“This is due to greater spending on public services necessary to serve the general population, as well as investment in infrastructure,” he stated.
Westpac bank now predicts record immigration will force governments to spend more money and delay much-needed interest rate cuts (pictured, a Westpac bank in Adelaide)
A record 547,300 migrants flooded into Australia in 2023, the highest number ever recorded in a calendar year (pictured, Sydney train commuters)
‘The growing fiscal impulse will be additional support.
‘But it increases inflation risks, particularly in areas where there are capacity constraints, such as the construction sector.
“If concerns about persistent price pressures continue, this may increase the risk that interest rate relief will be delayed.”
The Reserve Bank this week left interest rates unchanged at a 12-year high of 4.35 per cent, but the accompanying statement said government spending, apart from electricity rebates, risked worsening inflation.
“Recent budget results may also have an impact on demand, although federal and state energy rebates will temporarily reduce overall inflation,” he said.
RBA Governor Michele Bullock clumsily dodged a question about public spending at her press conference on Tuesday.
The Reserve Bank this week left interest rates unchanged at a 12-year high of 4.35 per cent, but the accompanying statement said government spending, apart from electricity rebates, was at risk of exacerbate inflation (pictured houses in Oran Park in south-west Sydney).
“I think the conversation today at the meeting was not specifically about budgets but about the total context,” he said.
“I don’t think it’s very helpful to think about the Budgets in isolation.”
Westpac continues to expect the RBA to cut rates in November, along with the Commonwealth Bank and NAB.
But last week ANZ changed its forecasts and delayed the first rate cut until February.
The 3.6 per cent inflation rate for the March quarter was still above the Reserve Bank’s 2 to 3 per cent target.
The RBA does not expect inflation to fall back within the band until the end of 2025.
