1. The Developed Nations Have Already Used Up Their "Demographic Dividend"
A demographic dividend is realized when a country's labor force is temporarily growing faster than the population dependent upon it (chart below). In the western world (plus Japan, not shown), the young people of the post-war "baby boom" began joining the workforce in the early 1960s, and dependency ratios fell rapidly. The result was a period of strong economic growth and high inflation. As dependency ratios leveled out in the early 1980s, steady disinflation ensued. Today, with baby boomers retiring and workforces shrinking in the developed world, dependency ratios are on the rise again — leading to much slower economic growth and likely deflationary pressures.
NOTE: Ratios are sum of those age 0-14 plus age 65+ to working-age population, age 15-64.
Data from United Nations Population Division
Due to their much younger populations overall, emerging countries have seen a constant stream of young people swelling their workforces ever since the early 1970s (chart below). As a result, dependency ratios have fallen steadily and both economic growth and inflation are still high today. But their demographic dividend will also end in time as each emerging country ages. For China (not shown), that time is today, as dependency ratios began rising there in 2015. Next will come Brazil in about 2020, then Indonesia in 2025, and India around 2040.
NOTE: Ratios are sum of those age 0-14 plus age 65+ to working-age population, age 15-64.
Data from United Nations Population Division
In the chart below, we regress the core inflation rates of both developed and emerging countries against the median age of their populations. Not surprisingly, there's a strong correlation (R^2 = 0.73). Those countries with the oldest populations and shrinking workforces have the lowest inflation rates, with some even flirting with deflation (on the right) — while those with youngest populations and fast-growing workforces have the highest inflation rates (on the left). China and the U.S. are currently meeting in the middle.
Core inflation data from Trading Economics, as of 3/16/15
Median age data from United Nations Population Division