The Misery Index Returns

Summary

• The Misery Index, a combination of inflation and unemployment rates created by economist Arthur Okun, is resurfacing as a measure of interest across developed countries as inflation rates increase and unemployment remains relatively high.
• Canada suffered from inflation rates that were routinely above 4 percent up until 1992 when the Bank of Canada was finally able to bring inflation under control. Canadians have enjoyed low inflation rates, ranging from near zero to under 3 percent from 1992 to 2020.
• In 2021, inflation rates increased markedly and are expected to remain at their current level throughout 2022. While many argue the current inflation rates are transitory, meaning that they are short-term in nature, there are genuine reasons to worry that higher inflation could be longer lasting.
• Indeed, Canadians are now rightly concerned with inflation, our Misery Index, and our comparative performance with other industrialized countries.
• The International Monetary Fund forecasts Canada to have the 4th highest inflation rate among 35 industrialized countries in 2021 and the 8th highest unemployment rate.
• This results in Canada having the 6th worst Misery Index score (combined rates of inflation and unemployment) in 2021 out of 35 industrialized countries.
• Such results should prompt much greater interest in both inflation and unemployment—and policies that can respond to both—by governments, particularly the federal government.