Will population ageing bring back inflation?

The absence of inflation in OECD countries is allowing central banks to keep interest rates low, which makes high debt ratios acceptable. A r esurgen ce of inflation could completely change this equilibrium, raising the question of whether population ageing might bring back inflation. In theory, ageing is inflationary: it means that a larger share of the population (pensioners) dissave to consume and do not produce; this leads to excess demand for goods and services and to inflation. Are there signs that population ageing is inflationary in practice? This has not been the case in Japan. But Japan’s ageing has coincided with a high degree of labour market deregulation and a heav y skewing of income distribution against wage earners; A comparison of OECD countries shows that inflation is not higher at all in those where ageing is the most advanced. This can be explained by the fact that the skewing of income distribution outweighs demographics in the determination of inflation, and by the fact that in an open economy, excess demand for goods and services leads to an external deficit and not to inflation.