The Misery Index is set to make a comeback in Britain. It’s a fair bet that only those of you who remember the 1990s recession will have much idea of what I’m talking about, because that was the last time anyone spent any time discussing it. So what is it?

Well, as well as being the name of a Baltimore ‘deathgrind’ band (don’t ask me, that’s just what Google says) the Misery Index is a very simple economic indicator. It’s a financial pain barometer, measured by adding the rate of inflation to the unemployment level.

Hardly super-scientific. Yet when the Misery Index goes up, we all feel it hurting. And in Britain right now, with consumer prices rising at 4.4% year-on-year and unemployment up to 5.4%, the index has just hit 9.8, its highest point for almost 12 years…

Why the Misery Index is making a comeback

The Misery Index was created by American economist Arthur Okun. It was frequently quoted by the Democratic candidate Jimmy Carter during the 1976 US presidential election campaign. At the time, the index in the States stood at over 13.5. Carter rather piously claimed that no one responsible for imposing that degree of misery on the country had a right even to stand for president.

The peanut farmer duly won that election, but his comments rebounded on him four years later when he tried to get re-elected. By then, the index had soared to a staggering 22, and Carter was roundly trounced by Ronald Reagan.

Yet, if the American populace was feeling gloomy, at least they had the consolation of not being British. In the summer of 1974, the UK Misery Index climbed well into the 30s, as annual inflation – in those days measured by the Retail Price Index (RPI) not the Consumer Price index (CPI) as today – topped 26% and the country was hit by the three-day week. Then after a respite to a low of 13 by mid-1978, the index took off again after the Winter of Discontent, reaching 26 in the early months of Margaret Thatcher’s reign.

The rest is history. Monetarism – control of the amount of money in the system – came in, and inflation went out. And the Misery Index plunged to just six or so until 2004, and was still only just over seven a year ago. Bank of England governor Mervyn King has coined this the NICE – Non-Inflationary Consistent Expansion – decade. But now misery is making a come back.

On the prices side, the Bank warned in this month’s inflation report that CPI inflation is heading for 5%. But the sages of Threedneedle Street reckon it should then drop back sharply. Yet that’s not a view shared by most of the British people, according to Barclays Capital. The bank’s survey, released this week, indicated that expectations for future inflation have now climbed to their highest in 16 years, and that UK consumers expect inflation to still be 4.8% in two years’ time. What’s more, just 13% of respondents expect the CPI rate to be at, or below, 3% within two years.Read the full article

Source: The Misery Index Is Set to Make a Comeback