An economist with Scotiabank has blasted Prime Minister Justin Trudeau’s annual target to bring in 500,000 immigrants into Canada each year as one of the pressures leading to inflation.
Economist Derek Holt joined a growing number of professionals in the industry warning that the record targets are negatively impacting the Canadian economy in several ways.
“Alas, no one will win a Nobel Prize in Economics for observing that when you add a massive surge of immigration into a market with no supply, rents and house prices will push higher,” wrote Holt.
“Welcome to Duhonomics! The argument that immigration could invoke balanced effects on demand and supply side pressures on inflation that cancel each other out was never sensible and we’re getting the kind of persistent housing inflation I’ve warned about since last year when immigration numbers were skyrocketing.”
In his report for Scotiabank, Holt reported that inflation on shelter jumped by 0.7% month over month due to higher rent, insurance premiums and electricity.
“It wasn’t just shelter, however, as other service categories also jumped,” said Holt.
Other impacted categories included airfare, recreation, education and reading, as well as bus and subway fares.
“Immigration may be adding to domestic strains and pricing power in these sectors. Health care was up 0.3% and auto insurance increased by 0.5%. More drivers, more folks in the health care system,” observed Holt.
Holt suggested that the Bank of Canada tighten its policy adjustments even further due to “poorly executed immigration” among other things.
“There are mitigating effects on the rate hike cycle that are offsetting and that indicate policy needs to tighten further,” wrote Holt.
“The terms of trade, ongoing fiscal stimulus, poorly executed immigration policy, improving supply chains into a tightening cycle, strong corporate finances including high interest coverage and strengths in household finances for the majority of households in Canada are just a few such arguments.”
Instead of heeding calls from economists to bring back immigration to manageable levels, Liberal Immigration Minister Marc Miller has said that he is even considering boosting immigration even further to deal with the housing crisis.
“I don’t see a world in which we lower it, the need is too great,” said Miller.
“Whether we revise them upwards or not is something that I have to look at. But certainly I don’t think we’re in any position of wanting to lower them by any stretch of the imagination.”
Data from Statistics Canada has revealed that the country’s annual inflation rate has shot up to 3.3% in July, compared to the same month last year. This marks an increase in the pace of growth since June as the Consumer Price Index was up from a 2.8% rise.
