Does even a small spike in inflation affect the number of children a couple bring into the world? You’d be surprised.
Inflation is widely disliked. Surveys consistently find that inflation is believed to erode purchasing power and causes stress as households must make adjustments to their budgets. Recent data confirms the widespread intuition that wages are slow to adjust to inflation. In other words, families must make do with fewer goods and services when inflation hits. But do families also make do with fewer … babies?
Before answering this question, it is worth taking a step back to remind ourselves why it is important. Fertility is falling fast around the world, and America is no exception. Even though American women in every state consistently report that they would like to have between two and three children (on average), the number of children the average reproductive-aged woman is expected to have at current birth rates is between one and two. Moreover, inflation is something the government has been tasked to manage for over 100 years. Price stability is part of the Federal Reserve’s dual mandate.
For some time, it seemed as if household fertility plans were indifferent to small changes in inflation. Wages would catch up eventually, and empirical evidence suggested that inflation was not a significant predictor of fertility rates. For these reasons and others, economists focused their research attention on prices, such as the cost of childcare, that are specific to children but not common to every family. However, this way of thinking overlooks the importance of economic expectations. Families thrive when economic conditions are stable: Parents know how much to save for Christmas presents, how far their grocery budget will stretch, and where to schedule that vacation with the grandparents. The trouble with even modest inflation—no one disputes that hyperinflation is ruinous—is not the higher prices as such, but that nobody planned for them. A family that expects 3% and sees 3% has already taken the change in stride. One that expects 2% and sees 6% must revise their plans, including perhaps the timing of their next child.
New Evidence
In a new working paper, we show that an experience of unexpected inflation—the part of inflation that households and businesses did not account for in their economic plans—is associated with lower fertility in the following year. These effects appear most clearly in the fertility rates of younger women (under 25), who have more years to delay growing their family and may hope to make up those births later on. This is exactly the cohort that economists have already pointed out have historically unprecedented levels of childlessness. While many of these women will likely go on to start their families later—the average age of first-time mothers was 27.5 in 2023—some of our analyses suggest that this catch-up fertility is partial at best.
Our headline result is that a one-percentage-point increase in unexpected inflation is associated with a reduction of about 1–2 births per 10,000 women of childbearing age annually. This might seem like a small effect, but “inflation surprises” have been getting larger recently. In 2021, unexpected inflation averaged about 4 percentage points, a period when the U.S. economy was recovering from COVID. With approximately 64 million women aged 15–44 in the United States, this yields an estimated reduction of roughly 24,000 to 39,000 births in the year following the shock.
Moreover, many of these children would have gone on to have families of their own. It is important to keep in mind when reading fertility statistics that small differences can have resounding impacts. For example, demographer Lyman Stone estimated that France’s pronatal policies added 5–10 million people over the 80 years they have been in effect. That is roughly half the population of the entire metropolitan area of Paris.
Another striking result from our new paper is that the impact of unexpected inflation on fertility is symmetric. Lower-than-expected inflation is associated with an increase in fertility, while higher-than-expected inflation is associated with a decline. Women aged 30–34, however, are an exception to these patterns. They display a stronger fertility response to below-expectations inflation than to above-expectations inflation—a pattern consistent with a “green light effect” for women facing a narrowing reproductive window. This group of women are at the peak of their childbearing window and seem to prefer having their babies at once rather than postponing them until the economic conditions are stable.
Policy Implications
Politicians love to dole out benefits to specific interest groups. For instance, the Child and Dependent Care Credit reduces a household’s tax bill if they spent money on third-party childcare. A recent proposal from the White House gained much attention by planning to reroute some of those funds to married parents with a single income below the median income of their state. The trouble with both these approaches to supporting families is that they dish out benefits to a small subset of families while imposing costs (via taxes) on the rest—a classic case of concentrated benefits and dispersed costs.
Unexpected inflation, on the other hand, imposes costs on virtually everyone. We don’t have to pick and choose who pays and who benefits. There is even a vicious cycle at play here. “Pronatal” policies that amount to writing checks to a subset of families will deepen the budget deficit, and a deeper deficit raises the odds that inflation becomes part of the way the government pays down its debt.
This project also reveals an important, larger point: All policy is family policy. Even and especially those policy choices that impact money—which is one-half of every transaction—can change the fertility plans that families make. At a time when countries are eager to discover pronatal policy that works, we would do well to remember that households prosper under conditions of stability and peace. Sound money is rarely considered to be “pro-family” policy, but it should be. Households find it harder to exercise prudence about the future when the unit of account changes in unexpected ways.
Families are tasked with rearing and educating their children. They must do so by planning over a time horizon that is decades-long. Economic conditions really do matter when families are considering whether to welcome another child into the world. What matters most is not that conditions be generous, but that they be predictable.
