Despite more than 20 years of contrary evidence, the view that an increase in the aged dependency ratio will be inflationary continues to thrive. The latest entry is The Great Demographic Reversal by Charles Goodhart and Manoj Pradhan. Their analysis is flawed, and their conclusions are erroneous.
Their starting point is the total dependency ratio (number of persons 15 years old and younger plus the number of persons aged 65 years old and over per 100 persons of working age, defined as 15?64 years old).
They then state:
An increase in consumption by itself creates an inflationary impulse for a given basket of goods and services. The act of production has the ability to expand the stock of goods and services for a given level of consumption and is therefore disinflationary. Dependents (the young and the old) are purely consumers and hence generate an inflationary impulse, whereas workers can offset this inflationary impulse through production. If the growth rate of workers in the economy outweighs that of dependents (as was the case during the demographic sweet spot), the world will go through a period of disinflation as it has for the last few decades. Over the next few decades, the rate of growth of dependents will outstrip that of workers. In level terms, the level of workers will still be greater than that of dependents over the foreseeable future, but it is the rate of growth that is changing throughout, and that matters here.