Record-breaking immigration is muddying the economic picture for the Bank of Canada, distorting key statistics and making its battle against inflation more difficult.
A surge of newcomers – largely driven by an unplanned spike in foreign students and temporary workers – has pushed Canada’s population growth rate to 3.2 per cent, one of the fastest in the world.
The country added more than 1.2 million new residents in a year, an influx that has propped up gross domestic product, bolstered consumer demand and led to higher costs for homes, all while dragging on productivity and boosting the unemployment rate. It’s creating a puzzle for policymakers and economists.
Population gains are complicating the central bank’s ability to assess how restrictive interest rates truly are, according to Stefane Marion, National Bank of Canada’s chief economist. The Bank of Canada raised its overnight rate to five per cent with hikes last June and July after the economy — specifically consumption — showed surprising strength.
“Were the last 50 to 75 basis points warranted when it’s all driven by a population surge which you can’t do anything about?” Marion said in an interview. “I think the Bank of Canada misread the situation.”
While pandemic supply-chain shocks were a forecasting dilemma faced by monetary policymakers around the world, the Bank of Canada is the lone major central bank setting rates amid an accelerating population boom.
It’s inconvenient timing, adding risk to the central bank’s already damaged credibility as policymakers weigh how long they should hold borrowing costs at the highest level in more than two decades.
“No one has models calibrated for this type of population flow,” Marion said.
Last year, the central bank spent “considerable” time during its April rate-decision meetings discussing how population flows are affecting their interpretation of economic data. When the