Opinion: Don't blame immigration for inflation and high interest rates

financialpost.com:

In the 12 months ending in March 2023, Canada welcomed nearly 1.2 million new people, a record for a one-year period. For 2023, population growth is expected to surpass three per cent, a 65-year high. 

This influx has resulted in recent commentary about the merits of bringing so many new people into the country so quickly. Concerns have run the gamut from strains on housing and social services to decreased affordability, with some also blaming it for higher inflation. But immigration has not caused the surge in inflation or led the Bank of Canada to tighten monetary policy. In fact,immigration has alleviated extreme tightness in the labour market, a critical factor in limiting domestic inflation pressures.   

During the pandemic, immigration slumped, from an inflow of 531,000 in 2019, to just 88,000 in 2020. As we reopened the economy, spending and employment surged, workers retired and labour markets tightened to unsustainable levels. By the end of 2021, Canada’s economy had more than recovered from pandemic job losses, and by mid 2022, the unemployment rate had fallen to a record low of 4.9 per cent, while job vacancies surpassed a million.  

Inflation was also surging. At first from pandemic-induced effects (supply-chain problems, lagging oil production and unexpectedly strong demand for durable goods) and later from the commodity price surge that followed Russia’s invasion of Ukraine. The combined effects of rising inflation expectations and super-tight labour markets became a major concern for our central bank. Given the risk of a wage-price spiral, the Bank of Canada began a series of rapid and sharp interest rate hikes, knowing that inflation would not settle at two per cent with labour markets so tight.  

The