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Organic Inflation & Commodity Demand Set To Crater?  Probably.

Summary

Why organic inflation is dead and isn't coming back.

Why commodity demand is doomed indefinitely.

All this, driven by shifting childbearing population growth and the changing demand they represent.

From 1980 to present:

  • Africa has grown from 11% to 17% of the worlds population
  • Africa has grown from 12% to 70% of the annual growth in the childbearing population
  • Africa has grown in responsibility from 17% to 30% of annual global births
  • However, African income per capita has risen just 240% compared to Upper Middle income nations (China, Brazil, Russia, etc.) income per capita rose 950% and high income nations 410%...Africa is clearly losing ground
  • And Africa has grown from just 2.4% to 3.6% of global energy consumption.

By 2030, Africa will be 22% of the worlds population, be 200% of annual growth among the childbearing population, and be responsible for 38% of global births...but still just estimated to be 4.6% of global energy consumption.

That is to say, Africa is all the growth in the childbearing population and births...but with minimal increase anticipated in energy consumption or global economic impact.  And as the Pew Research Center noted this week, the end of global population growth is now in sight and is the global population is likely to peak around 2100, under 11 billion persons.  Detailed here, Pew Data.

Why point all this out?  Because it is the annual growth in the global childbearing population (excluding Africa, blue columns below) that drives demand, inflation, and the Federal Funds interest rate (yellow line).  From 1950 to 1980, it was the accelerating rise in the childbearing population of potential consumers (above and beyond existing capacity) that pushed prices upward (more demand than supply) just as the Fed was hiking the cost of servicing debt (reducing growth in potential capacity).  Then from 1981 to present, the deceleration of growth among the same population coincided with decelerating inflation (decelerating demand with accelerating supply from lower interest rates).  The imminent declines in the same population will coincide with outright deflation (declining demand against a flat to potentially rising capacity thanks to a return to ZIRP or even NIRP).

15 to 40 year old population growth (as a %) versus federal funds rate, below.

Looking at the global childbearing population x-Africa (blue line below) versus young x-Africa (0-14yr/olds), the divergence is plain to see below.  The total size of the two population sets were essentially identical in the late 1960's.  However, outside of Africa, the global population of young is clearly in decline...and soon, the global childbearing population (x-Africa) will follow.

Below, the annual change in the global childbearing population (x-Africa) and annual change in the global population of young (x-Africa) versus the Federal Funds Rate.  The shape of the rate curve should make more sense when matched against the real world changing demand of potential consumers.  The rationale for rate cuts, ZIRP, and sooner than later, NIRP should also be clear as we are at the end of population growth driven demand increases.  The onset of secular declines among the nexus of economic activity is inevitable and imminent.  From a growth perspective, the sky has truly fallen...and will only continue to fall faster.

Broadening out to view the global annual childbearing population growth, world (excluding Africa, blue columns) versus Africa (red columns, below).  The 90% deceleration of the annual growth of the childbearing population (excluding Africa) versus the doubling of the childbearing population growth in Africa has not resulted in rising economic activity.

Below, global births annually (excluding Africa, blue line) versus births in Africa (red line).  Global annual births (x-Africa) peaked in 1989 and have declined by 17 million.  Over the same timespan, annual births in Africa have risen 18 million.  Trading a poor soul for a relatively wealthy soul ultimately means global consumption is in big trouble, once rate cuts and debt burdens have reached their full potential.

Africa consumes 3.6% of the total global primary energy supply.  From 1980 through 2016, Africa's portion of global energy consumption has risen from 2.4% to 3.6%.

Below, 1980 through 2016, year over year change in global total primary energy consumption.  World consumption (excluding Africa, blue columns) versus Africa (red columns).  The deceleration of global annual growth with little to no offsetting demand growth from Africa is clear.

As growth ends among the world (x-Africa) and shifts solely to Africa, the differential and disparity of income per capita between the groups that make up the world versus that of Sub-Saharan Africa doom further economic growth.  The population rise in poor Africans is only offsetting the declining population of the rest of the world.  The chart below details that the average African can consume just 3% what a single high income nation resident would.  The average African can consume just 18% what an upper middle nation resident (China, Mexico, Russia, Brazil, etc.) would...and only 70% what a lower income nation resident (India, Pakistan, etc.) would consume.

This whole scenario seems to suggest not just a global slowdown is imminent, but an outright collapse in demand is more likely than not.

Population data from UN World Population Prospects 2019; Primary energy data from EIA, GNI per capita via Atlas method, from World Bank.