Impact estimation of demographic factors on the inflation rate in the Russian regions

Abstract

Inflation can be formed under both monetary and nonmonetary factors. Demographic factors, in particular, the age structure of the population, create the economic environment, where monetary policy operates and inflationary processes develop. When we forecast the inflation rate it is necessary to consider demographic factors as impact on the inflation rate— the age structure of the population, so the contribution of this factor to the dynamics of the inflation rate in the country as a whole and in specific regions, in particular, in the Federal Areas. The regional aspect of the interaction between demographic processes and the inflation rate is important. The geographic and economic specifics of the districts’ differences in traditions, lifestyle of the population determine different demographic dynamics in different regions, and hence its impact on inflationary processes. To estimate the contribution of this influence we used the factor decomposition of the determination coefficient. We received the following results: the growth of the population younger and older than working age share has a significant inflationary effect on price dynamics, and the growth of the population working age share has a deflationary effect. In the country as a whole, different age groups share of influence on inflation level differs in the following way: for the population younger than the working age it is about 8% of the determination coefficient, that is about 6% of the inflation rate dynamics; for the population of the working age — about 5% of the inflation rate dynamics, and for the population older than the working age — about 1%. At the same time in different federal areas this share varies. Since different age groups of the population vary in their consumption behavior, savings, borrowing, inflation expectations and the confidence degree to the monetary authorities, the age structure of the population can be significant factor of the monetary policy effectiveness in searching the inflation targets.