👵 Boomerflation

Inflation and small investors | Tuesday, November 29, 2022

Open in app View in browser   Presented By Walmart   Axios Macro By Neil Irwin and Courtenay Brown · Nov 29, 2022 Retiring baby boomers are making the Fed's battle to bring down inflation more difficult. More below. Plus, new research that examines how inflation news affects household investment decisions. 📈📉 🇨🇭Axios will be at the 2023 World Economic Forum in Davos, Switzerland. Want to attend one of our events? Request an invite here. Today's newsletter, edited by Javier E. David and copy edited by Elizabeth Black, is 579 words, a 2.5-minute read.     1 big thing: How an aging population makes inflation worse Illustration: Shoshana Gordon/Axios   The baby boomers are hitting their retirement years, and that may make it more challenging — and economically costly — to lower inflation. Demand in the economy exceeds supply of goods and services. The fewer people who are working because they have elected to retire, the harder it will be for supply to catch up. Why it matters: With retirements driving slow labor force growth, more of the burden of bringing inflation down will fall on the Fed's efforts to reduce demand — meaning a more severe downturn than might occur otherwise. The backdrop: The extra-large postwar generation born between 1945 and 1964 has been shaping the economy for seven decades. As they stop working, their contribution to economic output vanishes, while their consumption continues as they spend down retirement savings. The generations coming behind them are smaller and immigration rates have fallen, making for a less favorable "dependency ratio" of those working to those not. For example, in the year 2000 there were 3.6 adults in their prime working years between 25 to 54 for every adult over age 65. Now, that ratio is down to 2.2, and still falling. What they're saying: "An aging population will hurt the U.S. economy's ability to grow without creating inflation longer term," BlackRock Investment Institute researchers argue in a new commentary. The demographic realities make "it hard for the economy to operate at current activity levels without fueling inflation," wrote Jean Boivin, Alex Brazier, Wei Li, and Nicholas Fawcett. "The Fed would need to crush activity to push inflation back to its target," they add. Flashback: For years, economists have looked at aging populations as a potential explanation for persistently low inflation and interest rates. The intuition: The super-sized Boomer generation has spent decades accumulating assets in preparation for retirement, creating a savings glut, while also moving through prime years of their working life. With the youngest of the generation now 58 and the oldest 77, those trends may be in the process of reversing, with millions flowing out of the labor force and their savings rates turning negative. The underlying demographic forces are slow-moving and inevitable. What is more surprising is that they coincide with high inflation also fueled by global supply constraints and excessive pandemic-era stimulus. The bottom line: Demography is destiny, and in this case means bringing inflation down may not be easy.     A message from Walmart Walmart helps families save on the things they need most     Over 37 million Americans have diabetes. With Walmart, they can save up to 75% compared to the cash price of branded insulin. This adds up to more than $15 million saved across America since June 2021. Learn more about how Walmart helps families live better.     2. What retail trading tells us about inflation Illustration: Sarah Grillo/Axios   Long before GameStop, retail traders were piling in and out of another investment: inflation-protected bond funds. But exactly when they did so tells a story about how households respond to inflation-related developments — even during periods when inflation was low and stable. That's the takeaway from a new paper published by the National Bureau of Economic Research this week. Details: Researchers focused on three major events, including the 2013 taper tantrum, the 2016 presidential election and the COVID-19 crisis, associated with historically large inflows or outflows of an inflation-protected bonds index on the part of retail investors. "Retail investors do pay attention to major events that may have inflation implications, just not to the regular FOMC meetings," University of Chicago professor Stefan Nagel and Arrowstreet Capital's Zhen Yan write. The bottom line: Retail traders investing (or yanking) more funds out of inflation-sensitive investments may offer clues for policymakers about how ordinary Americans are digesting news. It could have implication for inflation. "Households' investing behavior may provide additional early cues whether the central bank is losing credibility and inflation expectations are becoming unanchored," the researchers write.     A message from Walmart Walmart helps save families up to 75% on insulin     Since June 2021, families across America have saved more than $15 million on insulin. Thanks to Walmart's low-cost private brand, shoppers can save up to 75% off the cash price of branded insulin. Learn more about how Walmart helps families live better.   Are you a fan of this email format? Your essential communications — to staff, clients and other stakeholders — can have the same style. 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