Debate: “Aging of the US Population Will Cause Deflation”

Featuring Brian LoDestro, Senior Portfolio Strategist at PGIM Fixed Income, and Douglas Gimple, Senior Portfolio Specialist, Fixed Income at Diamond Hill Capital Management, Inc.

Brian argued the affirmative: An aging population is expected to spend less for a variety of reasons. There will also be less workers and, historically speaking, when the labor force contracts so does economic growth. Less growth is deflationary. Ultimately, demand will slacken due to these reasons resulting in a deflationary environment.

Douglas argued the negative: He agreed that demand may slacken but so will supply for similar reasons – less workers producing product. Less workers can result in wage inflation due to labor shortages as well as product scarcity. Fair points for the case for potential inflationary pressures from aging demographics.

What we all agree on is that the developed markets primarily represented by the US, Europe and Japan is aging with population declines expected absent immigration. This is a long term characteristic to keep in mind as investors prepare for retirement.

Definitions: CPI: Consumer Price Index is a measure of the monthly change in prices paid by US consumers for a set basket of goods and services. It is a major measurement of inflation, relied upon by the Fed in making rate decisions.

PCE: Personal Consumption expenditures is a measure of spending on goods and services by people in the US. PCE is a broader view on spending as compared to CPI.

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