With record prices at the pumps, soaring costs for everything from milk to veggies to meat, and warnings from economists that inflation is going to continue taking a nasty bite out of paycheques for the foreseeable future, there’s no shortage of things for consumers to be miserable about. So it’s no surprise the so-called misery index is back in the headlines.
The index is a measure of financial distress. Born out of the 1970s, when consumers faced the dismal reality of prices for everyday goods surging at double-digit rates even as unemployment skyrocketed—a phenomenon known as stagflation—the index combined the inflation rate plus the unemployment rate. Over the years, variations of the index have added other factors, like interest rate changes and GDP per capita. Nevertheless, the core measure of prices and joblessness shown here remains a popular yardstick for economic hardship. And it’s on the rise.
If misery loves company, Canada and the U.S. now find themselves sharing the burden. The index has historically tended to be higher in Canada than in the U.S. because of differences in the way Statistics Canada measures the job market, which leads to a higher unemployment rate here. The gap has closed lately because annual inflation in the U.S. is running so much hotter than in Canada—7.5% in the U.S. in January versus 5.1% here.
It could be worse. Unemployment rates are near historic lows thanks to tight labour markets. That’s helped keep the misery index from straying too far from the range it was at in the 20 years before COVID-19. The worry is that could change fast. If central banks tame inflation without inflicting too much damage on the economy, the misery gauge will ease. Unfortunately, eras of rising interest rates are often followed by downturns, particularly in the U.S. but also in Canada, while inflation rates can easily take six months to a year to reflect policy changes by central banks. The result could be a period of both rising prices and rising unemployment. And that would equal more misery.
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