International student surge probably contributed to post-pandemic inflation: RBA

International students spend twice as much as Australian residents and work fewer hours on average, say Reserve Bank economists, who have found they were a probable contributor to the recent inflation surge amid an ongoing political debate over whether international arrivals have put pressure on housing prices.

While the RBA’s latest bulletin suggested international students add more to demand in the economy than they do to supply in the short term, its economists have rejected the idea that international students have been a major driver of the country’s price pressures.

The increase in international students was “just one of the many other forces at play” in the country’s inflation surge according to RBA economists.Credit: Sam Mooy

The RBA economists said the increase in international students was “just one of the many other forces at play” that drove inflation higher in the years immediately after the pandemic borders reopened.

Inflation peaked at 7.8 per cent in December 2022, and both house prices and rents have continued to climb, though at a slowing pace.

The total number of international students rose from just under 300,000 in 2022 to 560,000 by the end of 2023, with the RBA’s research noting such large swings could shift the dial on inflation, especially when the economy has little spare capacity or flexibility to increase supply.

The research found that international students spend about twice as much as residents, with the difference mostly explained by tuition fees. However, their spending, which is higher on average than the amount they earn, is also fuelled by the savings they bring with them.

Front-loaded spending on categories such as furniture may have contributed to inflation, the researchers said, as international students set up their lives in Australia and took some time to join the labour market.

Figures from the Australian Bureau of Statistics in June showed people were leaving Australia in the highest numbers since the pandemic, with international student numbers hovering near record highs but starting to stabilise.

In May, the Albanese government’s new assistant minister for international education, Julian Hill, refused to rule out another attempt to cap foreign student enrolments after its initial plan to cut down numbers was blocked by the Coalition and the Greens, saying: “We are not going to back off managing the numbers”. During the election, the Coalition also vowed to slow international arrivals.

On average, international students worked about half the weekly hours of an average member of the working age population before the pandemic, the economists said, partly due to a 40-hour fortnightly cap on the number of hours they could work.

But that difference narrowed to three-quarters following the pandemic, with students from India and Nepal typically looking for – or working in – jobs at the highest rate.

The research also noted that international students were important in helping businesses in sectors such as accommodation, food, retail and healthcare that faced labour shortages after the pandemic.

While rents surged over the past few years, RBA research found the rise in international student numbers was likely to have accounted for only a small share of that rise.

Education Department deputy secretary for higher education Ben Rimmer told a Senate inquiry last year that reliable data showed overseas students were competing for rental supply.

“There are some local government areas where international students make up 20 per cent or more of the private rental market,” he said. “I have no beef against the international students involved – I hope you understand that – but the idea that it has no impact on rents and on availability of rental supply is simply false.”

The RBA’s research found that international students were more likely to rent than Australian residents, especially in inner-city locations, putting upward pressure on prices. But the bank researchers said rents were already rising before borders reopened.

The RBA economists said a rise in the number of international students could lift demand for housing and therefore stimulate more dwelling investment, but cautioned that construction costs and slow building approvals meant it could take longer than in the past for housing supply to increase.

Their research also noted that while international students can now legally work more hours than before the pandemic – 48 hours a fortnight – recent tightening in visa policy had targeted groups of students more likely to be seeking to work, meaning fewer incoming students may add to the labour supply.

While they suggest international students probably contribute more to demand than supply over the short term, the researchers said the gap appears to have narrowed following the pandemic.

The research also noted that international students had been an important driver of economic growth, with education among the country’s top five exports, and that government spending decisions, interest rates and supply constraints played significant roles in the inflation surge following the pandemic, with the latter accounting for the biggest impact.

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