This post reports on a growing body of research indicating that inflation may be waning as a global risk, due to aging populations and shrinking work forces, especially in developed countries. This is not just futuristic research — 7 countries today are already considered “super-aged,” with over 20% of their population 65 and older (Japan, Italy, Greece, Portugal, Finland, Bulgaria, and Sweden). By 2020, this group will have 13 countries, and will grow to 34 nations by 2030, including the United States.
The charts below show inflation and declining working age populations, first in the G7 countries and then for the U.S.:
The G7 countries are the U.S., Japan, Germany, U.K., Italy, France and Canada.
Source: IMF Working Paper
Source: European Central Bank
Portfolio Implications: If inflation and economic growth stay low for years, it wouldn't be great news for bond investors, especially those looking for retirement income. Like most retirees though, after years of low rates already, I’ve personally adapted to them. Stocks and REITs have historically done well in low-inflation, low-growth environments. However, in a wholesale structural shift to a low inflation future, portfolio allocations to commodities and TIPS might be reconsidered. Your thoughts?