To illustrate this I think it’s helpful to look at a different example; not immigration, but inflation. Suppose that the price of chocolate goes up, as it is doing now, because of bad weather in the Ivory Coast. Now, what can we say about the impact on overall inflation:
- in the short term, consumers will adjust. They may buy less chocolate and more of other things;
- and, over time, so will other variables. The exchange rate may fall slightly (our terms of trade have worsened);
- and the Bank of England will adjust interest rates to ensure that we hit the inflation target.
- there may be some impact on inflation in the short-term. This will be less than one might expect just from the price rise, and the magnitude and persistence of the impact will depend on how the adjustment process works;
- there will be no impact at all on inflation in the medium to long term.