Is immigration stoking inflation? All signs point to no

Canada’s surging population has impacted the housing market, but immigration likely isn’t stoking inflation in other segments of the economy, finds new research from CIBC World Markets.

The report, which examined provincial level data, found that population growth is clearly driving up rents specifically, and bolstering housing markets generally.

“Three of the provinces that have seen the strongest increases in population since 2019 have also seen the biggest rise in housing costs,” it said.

Apart from housing costs, the report found “no clear link between population growth and inflation.”

For instance, Alberta has seen relatively low inflation despite rapid population growth, and Quebec has experienced the highest inflation rate amid weaker population gains due to its immigration limits.

The report suggested that, in general, the disinflationary boost to the labour force from immigration has perhaps offset the inflationary effect of added consumer demand.

Additionally, it found little evidence of a rising population weighing on per capita GDP.

In theory, a growing population could limit wage growth and discourage the sort of business investment needed to boost productivity, weighing on average household wealth, it said.

Yet, there’s “little evidence of that” in the provincial data, CIBC said.

“Comparing growth in GDP per capita, wages and investment intentions with the change in the proportion of foreign-born workers in the labour force reveals a slight positive correlation for each,” it said. “That suggests that an increased proportion of immigrants within the labour market can actually be a positive for per capita GDP, and that it doesn’t necessarily discourage investment or reduce wages.”

Overall, the report concludes that immigration is surely impacting the housing market, but there’s no proof that it’s driving inflation generally or weighing on per capita GDP.

“While there is clear evidence that population growth is adding to house price and rent inflation, there is little evidence that it is resulting in inflationary pressures in other areas,” it said. “Provincial breakdowns don’t provide any proof that rapid population growth is a significant contributor of the weakness seen in per-capita GDP.”

“While, for some areas of the country, the large influx of new workers may have been a case of too much too soon, in other areas it has helped offset an aging population to bring growth in both aggregate GDP and per capita GDP,” it said.