The world’s population is aging rapidly, driven primarily by a combination of retiring baby boomers, falling fertility and rising life expectancy.
Demographic studies of this aging trend often predict large effects on inflation and asset prices, but also frequently contradict each other both in terms of direction and timing.
These conflicting views illustrate the complexities of measuring demographics and its potential effects.
In our view, rising life expectancy is likely to become the key driving force behind the aging phenomenon in the long run.
To capture this effect, we examine demographic trends by adjusting for rising life expectancy rather than use fixed age groups.
Based on our analysis, we draw two main conclusions: 1) demographics are probably overstated as a driver of inflation and asset prices; 2) over the next decade, demographics are likely to be modestly supportive for US inflation and modestly negative for equities and bonds.