Thought the pandemic made us miserable? Here’s why we’re more miserable now

Feeling miserable? Forget psychologists – it is economists who can read the symptoms and provide a diagnosis by using a popular instrument from their toolbox called indexation. Enter the Misery Index.

For Australians, this index is at its highest level since the global financial crisis and higher than during the COVID-19 era, when we seemed universally fearful for our health and our economic future.

Reserve Bank governor Michele Bullock has a difficult balancing act.Credit: Dominic Lorrimer

Authors of this index, the economic think tank CEDA, describe it succinctly: “Australians are living through the most protracted period of economic misery since 2011.”

The Misery Index is influenced by a mix of inflation, or the consumer price index, the unemployment rate and interest rates – with a dollop of GDP thrown in.

While the index improved in 2022-23 after the worst of the pandemic had moved through the economy, our misery level has picked up again.

In particular, the upwards tick in the past quarter appears to be affected by unemployment creeping up as the economy continues to soften.

‘The large disparity in levels of satisfaction with standards of living between Gen X and Boomers highlights the impact.’

Ben Brown, Ipsos public affairs director

It highlights the difficulty of the task facing the Reserve Bank governor, Michele Bullock, who is attempting to balance the misery caused by inflation and the misery created by high interest rates.

This balancing act is also complicated by the desire to keep the economy growing and the aspiration to retain strong levels of employment.

Tuesday’s decision by the Reserve Bank to leave interest rates on hold reflects the central bank’s attempt to ensure the greatest economic poison of all, inflation, continues its slow downward trajectory.

That said, in the short term this won’t make many Australians with household debt any happier and won’t relieve the Misery Index.

“Unfortunately, Bullock’s only tool to address this challenge – raising interest rates – also inflicts pain. As the index clearly shows, the combined effect of 13 rate rises since May 2022 and inflation is, well, miserable,” says the CEDA research paper on the Misery Index.

And misery is the arch-enemy of any government, particularly one facing a near-term election. The prevailing economic wisdom is that the government’s recent moves to alleviate the cost of renting and mitigate high-energy bills, and introduce Stage 3 tax cuts, are designed to alleviate misery in the short term, but risk adding to inflation more generally.

Equally, misery is the ally of any opposition government who can gain traction by blaming the government for the economy’s woes.

Meanwhile, the findings of the Misery Index were supported by another report from global market research firm Ipsos which was also released on Tuesday.

The Ipsos Financial Circumstances Report found the proportion of Australians satisfied with their standard of living continues to decline as cost of living pressures remain consistently high.

CEDA and Ipsos note that the levels of misery and satisfaction vary across the population – divided roughly between the older Australians with net savings and younger Australians with mortgages and rents.

CEDA notes that inflation, interest rates and unemployment affect different people in different ways.

Those fortunate enough to own their homes outright or have large savings in the bank will benefit from higher interest rates.

Inflation, interest rates and unemployment affect different people in different ways.Credit: Louie Douvis

But high inflation disproportionately hurts those on lower and fixed incomes with less financial wiggle room to cope with rising prices.

Ispos is singing from the same song-sheet.

Ipsos public affairs director Ben Brown explains: “The large disparity in current levels of satisfaction with standards of living between Gen X and Boomers highlights the impact that elevated interest rates have had, with a higher proportion of Gen X having taken on relatively high mortgages while interest rates were at an all-time low.

“On the other hand, Boomers are more likely to have substantially paid down, or even paid off, their mortgages and built up savings, and thus, are more likely to be beneficiaries of higher interest rates.”

The good news is that when rates do begin to fall – which optimists predict could happen as early as November – it will be because the war on inflation has been largely won.

If so, we can begin measuring the happiness index.

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