This study says the relationship between aging and deflation (as seen in Japan, but possibly coming to many more countries in the future) depends on whether the aging is driven by falling fertility (which shrinks the work force in absolute terms) or longevity (which shrinks it only in relative terms).
Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of government debt does not become a burden on future generations. Our analysis reveals that the effects of aging depend on its causes. Aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate. Numerical simulation shows that aging over the past 40 years in Japan generated deflation of about 0.6 percentage points annually.
Here is another study that concludes “a larger share of dependents (ie young and old) is correlated with higher inflation, while a larger share of working age cohorts is correlated with lower inflation.” So maybe it depends to what extent the aging population is dependent on the working population, and whether the working population has additional dependents in the form of children (who will become the next working population). It’s complex, dynamic stuff that is hard to puzzle out.
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