Is the Effect of Population Ageing on Inflation Stage Dependent? An Empirical Analysis

There is an extensive theoretical and empirical literature on the relationship between inflation and population ageing. The majority of the studies have focused only on developed countries but still, there is a lack of consensus in the literature. This study is the first to investigate whether the relationship varies at different stages of development. To obtain conclusive evidence, the current study uses five-year average data for 110 countries from 1970 to 2018. The results obtained are as follows: i. For the overall sample, there is a negative relationship between population ageing and inflation. ii. The sign of the relationship changes with development. The relationship is positive at the initial stage of development, but at a later stage of development, the relationship turns negative. There are several papers that have provided an explanation of this negative relationship. Our paper is the first to offer an explanation regarding the positive relationship - a decline in fertility accompanied by ageing-induced spending increases the debt level, which further puts inflationary pressure on the economy. iii. Our results are robust to additional control variables. The findings highlight the role of development on the relationship between population ageing and inflation. Also, future monetary policies taken to stabilize price levels should incorporate the level of population ageing