Canadians' Misery Index Rising

In the 1960s, an economic adviser to President Lyndon<br /> Johnson came up<br /> with the idea of an index to measure the general economic hardships<br /> felt by the masses. This index, appropriately labeled “the Misery<br /> Index”, is calculated by adding the unemployment rate to the inflation<br /> rate. As inflation and unemployment eased during the 1980s the term<br /> seemed to fade from economic discourse.<br />

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Canadians’ Misery Index

In the 1960s, an economic adviser to President Lyndon Johnson came up
with the idea of an index to measure the general economic hardships
felt by the masses. This index, appropriately labeled “the Misery
Index”, is calculated by adding the unemployment rate to the inflation
rate. As inflation and unemployment eased during the 1980s the term
seemed to fade from economic discourse.

Canadian Misery Index Rising
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However, with rising inflationary pressures and stubbornly high
unemployment levels in both Canada and the US, this index may be more
relevant than ever. With the 2012 presidential election around the
corner it would not be surprising to hear the term “Misery Index”
dusted off for use in the political arena.
Canada has earned accolades from politicians and individuals for its
fiscal prudence and strong banking system, many Canadians are not
receiving the benefits of the gleeful conditions that they are being
told they are experiencing. One example of this discontent is the
“Occupy” movement that started in Wall Street and made its way to
 Canada.  Looking at the news headlines, it seems
Canadians are none too happy with corporations and the lack of economic
progress on Main Street.  As the chart shows, the Canadian
misery index has stealthily marched higher after hitting a low in the
first quarter of 2008. The data indicate that the cost of living in
Canadian cities is rising and high unemployment is mounting.
is also apparent is that Toronto’s misery is at 16 year highs while
Vancouver’s and Montreal’s misery has also climbed sharply higher and
is now above the psychological threshold of 10%. Many might find this
surprising since this is counterintuitive to the broadly bullish
opinions that have become the consensus. This finding is particularly
noteworthy  because the OECD (Organization for Economic
Co-operation and Development) has singled out Canada as a country
facing significant challenges from a steady climb  in consumer
debt. Looking at the data in the chart above, Canadians may wish to
consider the underlying trends in inflation and unemployment before
making major  financial decisions. Recent unemployment data in
Canada shows unemployment at 7.3% and inflation rising to an
uncomfortable 3.2%.
will note that by excluding volatile items such as food and energy,
inflation is up 1.9% and that the misery index has traditionally used
total inflation, or “headline  inflation”.  At the
same time, many investors and non-investors alike are particularly
irked by the “excluding food and energy” part of inflation data. With a
hint of sarcasm, they will say “Sure inflation is no problem – if you
do not have to drive or eat.”  It is true that globally, much
of the increase in headline inflation has been driven by food and
energy prices due to weather and the effects of easy monetary policy in
the US.  Should headline inflation persist through high energy
and food prices, it could trickle down into the core-inflation numbers.

the Canadian and US economies so closely linked to one another, what
happens in the US impacts Canada.  Much of what happens to
Canada’s economy depends on the policy path of the Federal Reserve.
Simply put, Fed policies impact the global economy.  Yet, it
is often forgotten that the e Federal Reserve has a dual mandate.
 Apart from keeping prices (inflation) under control, the Fed
is supposed to be mindful of the US unemployment rate. To that end,
with 14 million Americans out of work, the Fed sees unemployment as the
 bigger issue.

danger of the Fed’s focus on lowering unemployment is that it could
inadvertently stoke inflation. As central bankers have learned from
past experience, once the inflation genie is  let out – it is
difficult to rein it in.   Time will tell if this will be the
case but if inflation becomes persistent, then the misery index will
become a much more popular economic data point than it has been in a
very long time.

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