Overlooked as a reason for our sluggish economic growth and price weakness is the ageing of our population.
In the year 2001 the median age of Canada’s population was 37.6 years, and that climbed to 40.4 at the present time. In 15 years that will rise to 42 years. The figures and projections are from our Census data.
What will all this mean?
These reversals had been largely ignored until recently. In Japan for example, because of deflation, there is evidence that prices fell as the population aged and their growth slowed with inflation diminishing.
Consider the factors of production. When growth slows down, businesses clearly curb investment even though the cost of capital falls inasmuch as the need for capital declines.
A reversal in population expansion changes the inflation numbers. Inflation becomes more subdued. Wages will rise, as there will be a drop in supply.
That is what took place in Europe following the Black Plague epidemic. The labour supply fell drastically. That incidentally helped the European economy recover as workers’ incomes climbed.
Governments become inclined to make cuts in outlays because of the rise in demand to meet the increasing number of pensioners. As a confluence of these trends, inflation falls. Debts become more burdensome as prices decline and there are fewer workers to pay down debts.
The longer lives of pensioners would tighten monetary policy as the ageing population would object to inflation eating into their savings. Also, of course, there would be a significant increase in medical expenses for the elderly.
The older population would be inclined to sell some of their assets to pay for their necessities. That implies that there will be a glut of houses on the market. With the liquidation of so many assets, they would decline in price. Such deflation trends adversely affect the economy as people postpone purchases, hoping for further price declines.
The rising number of older people will decrease the demand for goods and services.
In summary, the ageing of our population will lead to a more desultory economy, as has been so dramatically evident in Japan, which is experiencing the largest increase in the ageing population of any major nation.