Add another issue to the lengthy list that faces the world's central banks: demographics.
An aging population in many countries looms as an obstacle to maintaining decent growth and keeping inflation on target — and there is little central bankers can do about it.
To Andrew Cates and Sophie Constable, economists at UBS Group AG in London, aging and shrinking populations are playing a "critical — and underappreciated" role in keeping inflation weak.
One reason for that is that older people tend to suppress inflation by spending less than youngsters — and because they no longer need to buy assets such as houses, undermining the prices of those. The money they do spend is increasingly on services such as medical care rather than the purchase of durable goods, which have a bigger impact on the economy.
The data bear out the theory. Analyzing about 50 economies, the UBS economists found a strong relationship between inflation averaged over five years and the change over the same time frame in a country's dependency ratio, which compares the number of people inside and outside a workforce.
Japan, for example, has seen its dependency ratio rise more than 7 percent and had an inflation rate around zero. Over the past 10 years, prices of medical services have gained even amid general deflation and declines in the cost of household goods.
Others finding a disinflationary force as their populations turn increasingly gray include Sweden, Finland, Spain, France, the Czech Republic and Ireland, according to UBS. As an average, the world's dependency ratio has fallen about 1 percent and inflation is around 4.5 percent.
"Most developed and many developing countries will age more rapidly in the period ahead," Cates and Constable said in a Nov. 27 report. "That will hold back global inflationary pressures and by extension be of great significance for monetary policy settings and the broader outlook for markets as well."
