It’s Friday, so we shouldn’t be doing this but … it’s misery (index) time!
Société Générale has an update of the infamous index, which was first developed in the 1970s by American economist Arthur Okun. Basically it measures inflation plus unemployment, which means it can act as an indicator of the dreaded stagflation.
So, over to SocGen:
A look at this index today gives some interesting results. Overall, the index is much higher now than in the early 2000s, both in Europe and the US, but remains stable in Japan. Going more into the details, we see that the index has currently hit 10.6 (9% unemployment and 1.6% inflation) in the US, vs 7.0 when the subprime crisis struck in summer 2007, but below the peak reached at end-2009 of 12.5. The situation is much more alarming in Europe. For the euro zone, the index is currently at 12.4 (10% unemployment and 2.4% inflation), i.e. its highest level since early 1997. It had fallen to near 9.0 in July 2009 owing to inflation that was negative, before rebounding since then on the combination of rising unemployment and a sizeable uptrend in prices. Note however that Germany currently shows an index of 9.4, which is definitely higher than the low of summer 2009, owing to the increase in inflation, but has stayed at the lowest levels since the reunification thanks to an all-time low unemployment rate. However, it is in the UK that the situation is the most worrisome, with a misery index of 11.9 (7.9% unemployment and 4% inflation), the highest level in 17 years! This index was at 5.8 in September 2004.
So, pour pity on the Britons.
Not least because according to SocGen there’s now very little they can do about it:
The last time that the UK posted this level of misery index in March 1994, the intervention rate was at 5.25% vs 0.5% today. And that is without mentioning the budget deficit. That is to say that the room to manoeuvre is the not the same for improving the situation since the Cameron plan can only deteriorate this situation further. Yet another reason to be especially cautious on the outlook for the pound sterling.
Erm, happy Friday!
Related links:
Misery index: plumbing the depths of despair – Lex
Moody’s sees sovereign states a-suffering – FT Alphaville