Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Ageing 'vortex' could calm inflation excitement :Mike Dolan

EconomyNov 26, 2021 06:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: People are seen on Wall St. outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. REUTERS/Brendan McDermid/File Photo

By Mike Dolan

LONDON (Reuters) -Fear of inflation is back in vogue and tops nearly every 2022 investment outlook into year-end, but ageing populations and falling fertility rates from Berlin to Beijing may knock it off the catwalk yet again.

With headline and core inflation rates at their highest in decades, squeezing real incomes as economies recover from the conronavirus pandemic, debates rage about a return to the 1970s or even 1920s and strategists model scenarios from 'stagflation' to 'growthflation'.

Global fund manager surveys this month still identify inflation as the biggest 'tail risk', far more than China's stability, COVID-19 or asset bubbles.

It's back in the public zeitgeist too - Google (NASDAQ:GOOGL) trends show more searches for 'inflation' worldwide than at any point in the 17-year history of its search data - making it politically sensitive for leaders from U.S. President Joe Biden down.

Faced with its persistence for months, central banks seem to have quietly dropped a mantra that the post-pandemic spike in prices will be 'transitory' and now look set to return more quickly to pre-COVID monetary settings.

Many mega-trend analyses suggest it may be more than just base effects and bottlenecks as lockdowns lift, with some warning of 'greenflation' as climate fears accelerate moves to more sustainable energy before much of the new infrastructure is in place. And after a decade of electoral shocks fuelled by voter unease at stagnant household incomes, fairness and inequality has moved government agendas as some aim to redress the balance.

What's more, fractious geopolitical trends between the West on one hand and China and Russia of the other raise fears of a rollback in the supply-chain trade globalisation that helped keep goods prices low for the past 20 years.


But one mega trend that still cools talk of overheating ahead is ageing demographics and falling per capita incomes, which the pandemic likely accelerated rather than reversed.

U.S. birth rates, for example, have been falling steadily for a decade. At 1.64 per woman, they are now far below the 2.1 replacement rate necessary to keep the population stable - a rate last seen in 2007. That decline picked up in 2020 after the pandemic hit, analysts at Washington's Brookings think tank say, and confounded early predictions of a mini lockdown baby boom.

But rapid ageing due to falling births and longer lifespans is a worldwide phenomenon -- most clearly in Japan, Germany, Italy and Britain -- it is most pronounced in China where the Beijing had to rapidly abandon its one-child policy.

"The Global Demographic Vortex", a recent report by U.S. economist Eric Basmajian grabbed attention in financial markets.

He argues this ageing would "act as a vacuum, sucking resources from the prime-age workers through taxation or debt-financed transfers, forcing central banks to hold rates at the zero-bound or quickly return after another failed attempt to combat rising inflation."

But his main point is that comparisons between today's supply-side driven inflation and that of the 1970s are way wide of the mark given the radically different demographic backdrop.

Between 1960 and 1985, the United States saw some of the most positive demographics in its history, largely due to the post-World War Two baby boom.

Basmajian showed that the 20-year rolling change in the U.S. age-dependency ratio - workers as a share of retirees and children - explained almost all of the long-term inflation trends of the past 50 years.

Societe Generale (OTC:SCGLY) strategist Albert Edwards, long-time market bear and cautionary voice on a deflationary "Ice Age", said this data shows demographics are set to reach "maximum deflationary pressure" in the decade ahead.

The counterview, outlined in a recent book by economists Charles Goodhart and Manoj Pradhan, is that demographic trends themselves could spur inflation by boosting workers' wage bargaining power and cutting excess savings.

And others talk of the quick rebound from the pandemic and myriad government supports lifting birth rates again and stabilising the dire 2020 readings at least.

But the evidence from Japan, the country furthest down the ageing tunnel, points to a very different outcome where even in the midst of all the current angst, inflation remains dormant.

Analysts at Fathom Consulting this week highlighted the correlation between falling birth rates in Japan over the past 60 years and falling expectations of per capita economic growth over future decades - suggesting the latter led to the former to amplify a hit to overall output by reducing numbers of workers.

"It looks like a similar effect might now be playing out in China, potentially aggravating the growth slowdown there in years to come," they concluded.

Whether you are a believer or not, 2022 may prove to be the year when we find out.

(by Mike Dolan, Twitter (NYSE:TWTR): @reutersMikeD; Editing by Alexander Smith)

Ageing 'vortex' could calm inflation excitement :Mike Dolan

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email