Economist highlights the possibilities involving population growth dynamics
Canada’s robust population growth rate, which has recently been impelled by surging immigration numbers, is likely to render any inflation-control measures ineffective for the foreseeable future, according to Doug Porter, chief economist at BMO.
“The extra spending and the extra demand for housing is almost instantaneous, whereas it might take a new worker a little bit of time to really act as a dampener on inflation,” Porter said in an interview with Bloomberg News.
“The short-term impact does tend to lift inflation a little bit, whereas longer term, it turns to more of a neutral.”
That extra demand will likely be more than sufficient when it comes to keeping GDP at a healthy pace, Porter warned.
“Even if it’s roughly neutral for inflation, it’s going to be positive for nominal GDP growth, which really drives interest rates,” he said. “Higher population growth does go hand in hand with somewhat higher interest rates, baseline interest rates over time.”
The Canadian population reached nearly 40 million at the start of this year, with the growth fuelled by more than 1 million new arrivals over the course of 2022. Statistics Canada reported that this was the first time in Canadian history where the population increased by over 1 million people on an annual basis.
The Canadian population clocked in at 39,566,248 on January 1 this year, with more than 1 million new arrivals registered over the course of 2022, according to Statistics Canada.https://t.co/XgbSgeR7Fd#mortgage #mortgagenews #housingmarket #immigration
— Canadian Mortgage Professional Magazine (@CMPmagazine) March 23, 2023
BoC interest hike partially influenced by population growth
The Bank of Canada’s latest policy announcement, which pushed the benchmark overnight rate to 5%, represents the institution’s strongest statement of its previous commitment to bring inflation down to its 2% target, according to Rishi Mishra, analyst at Futures First Canada Inc.
“The fact that the bank raised rates again suggested that they put a significant emphasis on demand coming from immigration,” Mishra told Bloomberg News.
“Increased demand for inelastic goods like housing blunts monetary policy transmission by keeping house prices and rents elevated for longer. Rapid population growth is also part of the reason why inflation is expected to stay elevated longer and why growth outlook is stronger.”
