The Westpac bank is now forecasting record-high 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 ever for a calendar year.
The 2.5 per cent population growth pace was also at the highest level since the early 1950s.
Westpac senior economist Pat Bustamante said this rapid population growth would mean more government spending – at a state and federal level – leading to more inflationary pressures.
‘This is driven by higher spending on the public services required to cater for the larger population, as well as investment in infrastructure,’ he said.
The Westpac bank is now forecasting record-high immigration will force governments to spend more money – and delay much needed interest rate cuts (pictured is a Westpac bank in Adelaide)
A record 547,300 migrants flooded into Australia in 2023 – the highest ever for a calendar year (pictured are Sydney train commuters)
‘The growing fiscal impulse will be an additional support.
‘But it adds to inflation risks, particularly in areas where there are existing capacity constraints, such as the construction sector.
‘If the concerns around persistent price pressures continue, this may add to the risk that interest rate relief is delayed.’
The Reserve Bank this week left interest rates on hold at a 12-year high of 4.35 per cent but the accompanying statement said government spending, apart from electricity rebates, risked aggravating inflation.
‘Recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation,’ it said.
RBA Governor Michele Bullock awkwardly sidestepped a question about government spending at her Tuesday media conference.
The Reserve Bank this week left interest rates on hold at a 12-year high of 4.35 per cent but the accompanying statement said government spending, apart from electricity rebates, risked aggravating inflation (pictured are houses at Oran Park in Sydney’s outer south-west)
‘I think the conversation of the board today wasn’t specifically on the Budgets but on the total context,’ she said.
‘I don’t think it’s very helpful to think about the Budgets in isolation.’
Westpac is still expecting the RBA to cut rates in November, along with the Commonwealth Bank and NAB.
But ANZ last week changed its forecasts to have the first rate cut delayed until February.
The inflation rate of 3.6 per cent for the March quarter was still above the Reserve Bank’s 2 to 3 per cent target.
The RBA isn’t expecting inflation to fall back within the band until late 2025.