There are several reasons, some, but not all, of them having to do with composition effects in the basket of consumption goods and in employment that may be associated with an older population. First, the consumption basket of young adults includes a higher proportion of expenditure on durable goods and services than that of the older age groups, whose consumption basket includes higher expenditure on non-durable goods and lower expenditure on services, as many of the services they consume are non-market services. Thus population ageing might prompt changes in the relative demand for goods and services. If higher demand is concentrated on goods and services with lower price growth, population ageing would put a certain degree of downward pressure on inflation. Secondly, population ageing tends to increase inflation aversion, insofar as older people who have accumulated more wealth, and are therefore generally net creditors, are more averse to inflation. Thirdly, composition effects in consumption could give rise to changes in the sectoral and occupational composition of employment, increasing the share of employment both in low and highly-skilled occupations and reducing it in medium-skilled occupations, as this is the skills’ pattern required to produce the goods and services in growing demand. Accordingly, demographics could also accelerate the trend towards the polarisation of employment that has been observed since the early 1990s and is usually attributed to technological advances resulting from the automation of routine tasks. Polarisation and the increasing share of low-skill occupations in services may tend to reduce wage pressures.

6  Admittedly, some new technological developments (such as digitalisation, robotics and artificial intelligence) could be a source of faster productivity growth. And plausibly, population ageing may actually promote automation. But eventually automation can only progress insofar as new ideas (so-called product innovation) emerge. Whatever the net effect on productivity, with the evidence we now have on the association between demography and growth in advanced economies in recent decades, we should not rule out the possibility that population ageing might significantly decrease potential output growth. Given population projections, extrapolating the observed association into the coming decades yields declines of output growth of about 1 percentage point (pp) until 2030, and close to 2 pp in countries where the demographic transition will accelerate in the years ahead. And recent observations on productivity growth are not very encouraging. Whatever the measurement used (either labour productivity or total factor productivity) there is a clear productivity slowdown in most advanced economies during the last two decades, even though total factor productivity growth has recovered somewhat in the last one. There is some discussion about to what extent this global productivity trend is due either to missmeasurement, to the delay in the diffusion of the new technologies and of their potential effects, or to more fundamental reasons, such as a slower innovation rate. Nevertheless, we cannot take for granted that productivity growth could compensate for the negative effects of population ageing on potential growth. 7  Population ageing may also affect trend inflation.