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Demographics and Trucking - May 22, 2018

The BIS Revisits Demographics

Back in January, we highlighted a paper put out by the BIS that made some bold claims, even its title, proclaiming, ‘Demographics will reverse three multi-decade global trends’, specifically  ‘As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall.’

Critics could have argued that the paper took too short of a view and didn’t cover multiple demographic cycles or that the post-war period made uncovering underlying dynamics impossible. These critiques and more are addressed in a recent paper, again from the BIS, which points to “The enduring link between demography and inflation.” Building on the previous work, the authors use long panel data going back to 1870 and conclude that, “The relationship between inflation and the age structure is robust.”

Exploring the dynamics, the authors find a few interesting things:

“the young and old are generally associated with higher inflation while working age cohorts are associated with lower inflation”

It is not perfectly clear cut,“[T]he old population has an ambiguous effect. The effect is positive for most old cohorts except for the last... , for which it turns sharply negative. Interestingly, it is this cohort that is most strongly affected by longevity.”

Which would seem to run counter to the lack of inflation seen in Japan, where the elderly population is increasing rapidly. However, the authors note that, broadly,

“Our findings suggest that the inflationary pressure from the increasing share of the old is not yet strong enough to offset the disinflationary pressures from the declining share of the young.”

Finally, the authors provide a warning/prediction for the future:

“Using public population projections together with our estimates suggests that inflationary pressures will increase substantially in the coming decades due to population ageing. And such pressures will be difficult to distinguish from, for instance, the delayed effects of the unprecedented monetary easing in the wake of the Great Recession, if seen through the lens of existing monetary policy frameworks.”

Trucking Tightness

In past TFTDs (here and here), we have highlighted how transportation has been metaphorically putting the brakes on the economy and it appears that, at least for trucking, the tightness continues. At the same time the CASS Truckload Linehaul Index (which isolates linehaul from fuel prices and other components) has hit record highs on both a level and a YoY basis, an article from the Washington Post takes a look at the “perfect storm” brewing within the industry.

“The economic upswing is creating heavy demand for trucks, but it’s hard to find drivers with unemployment so low” and despite high demand for “workers for a job that now pays $80,000 a year” with more bonuses likely on the way, “Young Americans are ignoring the job openings because they fear self-driving trucks will soon dominate the industry.”

With the industry already struggling to service demand, there’s the expectation that ‘it could get even worse when the holiday season hits’.

With the industry estimating that ‘Logistics and transportation accounts for about 10 cents of every dollar in the U.S. economy’, pass through of rising costs could generate higher prices for a variety of products across the board.