Population Age Structure and Inflation in Iran

Rapid population expansion of the early 1360s has now provided a young labor force who are mainly in the 20 to 29 years of age. According to the Life Cycle Hypothesis of Ando & Modigliani, if the age distribution of population of a country centers around a special age group, total consumption of the society would be affected by this dominate group. On the other hand, changes in total consumption will affect aggregate demand. Based on the Demand-pull’s theory of Keynes, This issue can cause change in prices and inflation. Keeping in mind these two stories, this paper is going to analyze the effect of population age structure change on the price level and inflation in the Iranian economy.
For this purpose, an inflation model is constructed which incorporated the age distribution of population. Using annual time series data within the period 1338 and 1386 and utilizing Co-integration techniques and Auto Regressive Lag (ARDL) method, the inflation model has been estimated. The results indicate that the age structure of population is an effective factor on inflation in the Iranian economy. A relative population increase in the age group of 15-24 and 55 years and over, tend to result in higher inflation, while a relative increase in population within the age group of 25-29, 30-34,…and 50-54 years has a negative impact on inflation. On the other hand the age groups of 35-39 and 40-44 years have the highest effect on disinflation.
Considering the obtained results, during the economy years when the currently young population of the country moves to the higher age group, it can be expected that inflationary pressure gradually is reduced and inflation moves along a descending trend.