Inflation and unemployment: the misery index rises
Yesterday we learned that the broad retail price index of inflation had risen to 5.1%, this morning we learned that unemployment had increased to just shy of 2.5 million.
One way to think about this unpleasant cocktail of rising unemployment and prices is to use an old device: the misery index.
In the 1970s the US economist Arthur Okan came up with the concept to measure the social costs of simultaneous high inflation and unemployment, until then a relatively unknown phenomena. The idea is simple – add together the unemployment rate and the rate of price increases as a measure of how much ‘misery’ the people are suffering.
The chart below shows the UK misery index over the past 20 years.
Two things stand out: first despite a severe recession in 2008-09 the misery index did not reach the heights of the early 1990s recession.
Second, and most significantly, that the index has been rising throughout 2010.
In the coming months, with inflation and unemployment both set to increase further, this index will continue to rise.
The question now is: ‘Just how miserable is George Osborne going to make us?’
Duncan Weldon is an economist and blogger. He will update the misery index in future months.
Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.
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