Published on Monday, August 21, 2023

Global | The changing effects of demographics on inflation

According to our analysis, global demographic trends and, more specifically, the ongoing process of population aging are contributing to current inflationary pressures.

Key points

  • Key points:
  • Two of the main demographic trends since the 1960s, falling fertility (which reduces the proportion of the very young and thus net borrowers) and rising life expectancy (which increases the need to save for a longer retirement period), have contributed to an increase in savings in relation to consumption, and supply in relation to demand, favoring an environment of lower inflationary pressures.
  • However, in recent years these two trends have lost momentum while the increasing proportion of retirees in the total population may be putting pressure on prices as, in line with life-cycle theory, the elderly consume more than they save.
  • Furthermore, the fall in the working-age population in recent years, after a long period of expansion, has presumably put upward pressure on wages and prices.
  • Although there seems to be evidence that population aging will lead to rising price pressures over the coming decades, in addition to a likely fall in economic growth (on which there is a greater consensus), there are a number of policies, such as birth, retirement and migration policies, that could mitigate the negative effects of population aging.
  • Finally, considering current demographic trends, perhaps we should view the prospect of work automation as an opportunity, rather than a problem.

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