Will the ageing population influence the price level in the economy?

The increase rate of the world population is in decline and the world economy is facing the issue of an ageing population. When there is an ageing population, there will be more retired people than work forces in the population.

When we assume there is no productivity improvement in the economy, it becomes a big problem that the outputs will decrease when there is an ageing population. Therefore, improving productivity is the most prior thing to deal with the ageing population. I do not think this is a very difficult task, as the speed of replacing some positions by machinery is constrained to the employment rate. When the ageing population appears, the overall working force in the population will decrease, there are fewer people that need to be offered jobs to lower the unemployment rate, so the speed of replacing positions by machinery can accelerate. Therefore, I think the production level in the future will not decrease.

Moreover, we also need to concern the difference between consumption powers of the working forces and the retired population. The permanent income hypothesis suggests that people will spend their money at a level which is equal to their expected long-term average income. If the hypothesis is true, the ageing population will have no impacts on the population's consumer powers, as people have stable consumer power over their lifetime. However, some assumptions in the permanent income hypothesis are not realistic, therefore, the permanent income hypothesis may not be true in the real world. People do not have an accurate estimation about their future incomes and they are more likely to overestimate their future incomes; under such circumstance, their consumptions will decrease when they realise their incomes are below their previous estimated levels. When this happens, the ageing population could cause a decline in the average consumption among the population.

Overall, when the supply level maintains or even increases and the demand/consumption level decreases, the price level under an ageing population economy will decrease.