Why an Ageing US Population is Keeping Inflation Elevated
Why an Ageing US Population is Keeping Inflation Elevated
Supply chain issues, commodity surges on geopolitical risk, energy crises, and fiscal stimulus have all been touted as reasons for keeping inflation firmer than has been expected. Initially, central banks around the world expected inflation to fade as it was seen as being transitory due to some unique factors. Now, many central banks may continue to see the near term inflation spike dropping, but the Fed has dropped the transitory language due to communication difficulty. Is transitory 6 weeks, 6 months, or 6 years. You see the difficulty? However, there is one other factor in this inflation puzzle to be aware of. That is the problem due to an ageing US population.
The ageing population problem
Headline inflation in the US is nearly 8% now. This is being driven by the fact that demand for goods is high, but the workforce has shrunk. The available jobs in the US are over 11 million, but there are only around 6.5 million unemployed. So, there is a huge demand gap. The huge boost in equity markets due to QE and fiscal stimulus has prompted a number of folks in the US to retire early. According to Ron Hetrick the senior economist at Burning Glass the 5.5 million people who dropped out of the IS workforce after 2022 consist of around 3.4 million who were early retirees. So, this is also in part a demographically driven inflation. This is not the whole cause of the inflation problem, but it is a part of the extra pressure that is inflating the US figure.
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