Retiring Sooner Causing Inflation

Today’s Chart of the Day comes from the Financial Times and includes an article asking if higher wage demands will increase inflation like in the 1970s. However, this time it is different since the workforce is shrinking as shown by the Participation Rate, the falling orange line in the chart. The participation rate is defined as the percentage of healthy people 16 or older who are actively working or looking to do so.

The rate dropped understandably during Covid-19, and recovered somewhat, but it is not back to pre-pandemic levels. Why? As our population ages, boomers are retiring faster than people turning 16 can replace them. The theory is that future inflation may be fueled by people demanding the same number of things as they continue to live; however, there could be less supply of those things as fewer people are working to provide them.

Thankfully, necessity breeds invention; therefore, don’t be surprised if you start to see more and more automation in our future.