STEPHEN JOHNSON: Why rising unemployment and inflation could see Australia slash immigration
STEPHEN JOHNSON: Rising unemployment and inflation, as a result of the worst global oil shock since the 1970s, could force Anthony Albanese to slash immigration levels by a third.
Australia may have to slash immigration if unemployment and inflation both rise to high levels at the same time as a result of the worst global oil shock since the 1970s.
The war in the Middle East is expected to weaken the labour market with new ANZ job ads data for March, released on Tuesday, showing a 3.1 per cent drop in available positions during the first full month of the conflict.
Unemployment was still low at 4.3 per cent in February, before the US air strikes on Iran, but an increase in the jobless rate to 5 per cent as a result of higher fuel prices would put political pressure on the Federal Government to slash immigration levels by a third to 200,000 a year, AMP chief economist Shane Oliver told The Nightly.
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By continuing you agree to our Terms and Privacy Policy.“If we’re now moving into a period of an oversupply of labour potentially as a result of higher unemployment, that will only add to pressure to reduce immigration levels — particularly given that we still have a housing shortfall on our calculations, between 200,000 and 300,000 dwellings,” he said.
Iran’s blockade of the Strait of Hormuz is depriving the world of a fifth of its crude oil needs.
This puts upward pressure on the price of plastics and paints needed to build housing, not to mention the cost of petrol and diesel.
“Building material costs are going to go up as a result of higher transport costs,” Dr Oliver said.
“Oil-related products are used in a lot of building materials like plastics for example, paints, and so this is going to put upwards pressure on housing-related costs which could have the negative impact of slowing the supply of housing.”
More interest rate rises from the Reserve Bank of Australia, to tackle soaring inflation, would only worsen the national housing supply crisis needed to house a swelling population.
The futures market is expecting two more hikes this year, that would take the RBA cash rate to a 15-year high of 4.6 per cent.
“This combination of higher building material costs and higher interest rates will further depress housing supply,” Dr Oliver said.
“It just reinforces the argument you’ve got to get immigration levels back down.”
The Reserve Bank of Australia aims to keep employment at 4.5 per cent or less and anchor inflation towards the mid-point of its 2-3 per cent target.
The last time both were above the RBA targets was in June 2021 when Australia was closed to overseas visitors.
Back when Sydney and Melbourne were in lockdown, COVID supply constraints saw inflation hit 3.8 per cent as unemployment climbed to 5 per cent, with the likes of restaurants and pubs banned from seating customers.
For most of the pandemic and its aftermath, unemployment had been falling as inflation has soared.
The jobless rate and inflation traditionally head in opposite directions.
But when they have gone up at the same time, a situation known as stagflation, Australian governments of the Labor variety have slashed immigration.
Bob Hawke’s government in its first year in office slashed net overseas migration from 102,709 to 54,995 in 1983.
In the year that Australia won the America’s Cup, unemployment was at 10 per cent as inflation hit 11.4 per cent.
His successor Paul Keating cut net overseas migration to just 34,822 in 1993 when unemployment was at 11 per cent, albeit during a period when inflation that year was still low at 1.2 per cent.
Two years earlier, during the 1991 recession, immigration levels stood at 81,669.
Under Anthony Albanese, net overseas migration hit record-high levels approaching 550,000 in 2023.
The level slowed to 311,000 in the year to September 2025 but inflation in February, before the US and Israel-led war on Iran, was already elevated at 3.7 per cent.
Like Australia, Canada also has a centre-left government with an uncompetitive Opposition. The fellow commodities-rich nation, with a much higher jobless rate of 6.7 per cent, has cut immigration and induced the first population decline since the 1940s.
Unlike Australia, Canada doesn’t have an anti-immigration party like One Nation outpolling any of the major political parties during a housing affordability crisis.
