For a decade now, economists have been theorizing about how China’s aging and shrinking population might affect its economic growth potential (Fig. 1 below and Fig. 2 below). Yet there’s nothing conjectural about the ways demographics are now exacerbating the nation’s deflation troubles.
As Japan’s experience since the 1990s has highlighted, few Asians in their mid-60s and higher consume with gusto as twenty- and thirty-somethings do. They tend to buy fewer houses, cars, and appliances; to upgrade technology less frequently; and to splurge less on luxury dining and travel.
Let’s explore how China’s demographic trends are stacking the deck against policymakers as they battle deflation:
