Research Briefing | May 25, 2022

Why an ageing population doesn’t mean soaring inflation

What’s the future for inflation? Joachim Nagel, the new president of Germany’s central bank, believes the rapidly ageing global population will play a key role – ramping up pressure on prices in the medium term. While we agree slowing labour supply will stifle output growth, in his recent discussion Nagel failed to fully consider the demand side of the argument.

What you will learn:

  • The head of Deutsche Bundesbank closely followed the arguments of Charles Goodhart and Manoj Pradhan’s book The Great Demographic Reversal. Those authors argue population ageing will not only constrain production possibilities, but also increase aggregate demand – both of which will drive up inflation.
  • But their analysis of aggregate demand is critically flawed and turns upside down the impact of demographic change on inflation.
  • We think the data used in the authors’ study are inadequate to identify the age profile of private consumption expenditures.

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