VIEW: Goldman Sachs: Migration Surge Puts Pressure On RBA To Resume Hiking Cycle

Goldman Sachs note that “high-frequency data suggest population growth is picking up sharply in Australia, driven by a surge in overseas migration. We estimate that net overseas migration is currently tracking at an annualised flow of around 520k people (or 2% of the population), which is around double the average pace in the years prior to COVID.”

• “The rebound in migration has produced a sharp tightening in the underlying balance in Australia’s housing market. Our proprietary measure of housing supply/demand is now in ‘undersupply’ territory after several years of ‘oversupply’ and looks set to reach its tightest level since 2008 later this year.”
• “The tailwind to inflation from higher rents and house prices is likely to offset any deflationary headwinds from higher labour supply. Our implied rule-of-thumb is each 100k increase in annual net migration adds ~10bps to aggregate inflation. As a result, we are upgrading our year-ended headline and trimmed-mean CPI forecasts for 2023 by +30bp to 3.9% Y/Y and +4.1% Y/Y, respectively. We are also boosting our year-ended GDP forecast for 2023 by +20bps to 1.9% Y/Y.”
• “From the RBA's perspective, we estimate the inflationary impact of each +100k increase in net migration can be roughly offset by an additional 25bp rate hike… This dynamic supports our view that the RBA will need to resume hiking rates over the coming months to keep inflation on a sufficient downward trajectory (we currently expect 25bp hikes in July and August).”