Demographic growth, key factor for inflation
The authorities, the various institutions and investors are surprised and wonder what is causing inflation in developed countries has remained at all-time lows since the outbreak of the crisis in 2008. The inflation has been no upturn despite the measures taken to stimulate the economy and fight off deflationary pressures:
- Interest rates have been close to 0% or in negative figures for almost a decade.
- The unemployment rate now stands at all-time lows in many regions and not even this appears to be pushing prices up in any significant way.
- Unprecedented and extremely aggressive stimulus measures of various kinds have been applied.
- Firstly, debt levels in the developed economies are generally at all-time highs (higher even than during the Great Depression). These high debt levels would be exerting strong structural pressure on the economy and on inflation by reducing consumption and investment.
- Secondly, demographic factors are identified as the main reason and most important cause of the high deflationary pressures we are currently experiencing.
The trend in inflation could be more constrained in the long term by growth in the economically active population in the USAThe graph shows how, over recent decades, both inflation and growth in the active population (the total number of working-age people) have gradually been falling to stand at historically low levels, and forecasts based on the demographic pyramid indicate that active population growth will fall further still over the next few years, which could put prices under even greater pressure. What are the reasons why the number of working-age people is barely increasing in developed countries? This boils down to two main reasons:
- Very low birth rates
- Aging populations