Misery Index Redux

June 9, 2008

The Paris-based Organization for Economic Co-operation and Development has released new semi-annual forecasts of growth and inflation this year and for 2009. For those areas that comprise the G7 — the U.S., Japan, Britain, Canada and the big-3 of Euroland — one can derive a growth/inflation tradeoff index by subtracting the latter from the former. This calculation is variation on the old misery index (inflation plus jobless rate) that was popular in the stagflating 1970’s and early 1980’s. Neither inflation nor unemployment are currently high enough to revive the misery index per se, but stick around. You never know.

Higher growth and lower inflation are desired, so a low GDP/Price quotient is worse than a higher measure. The U.S. and Ezone have similar quotients in 2008 based on the latest OECD forecasts (-1.7% for both) and 2009 (-1.1% in the U.S. and -1.0% in Euroland). Britain’s scores are -1.2% for 2008 and -1.1% for 2009. Japan’s results look the best of all (+0.8% and then +1.1%) but must be interpreted with a grain of salt because of deflationary vestiges that remain in that economy. For Japan, inflation is actually too low and only positive because of the effects of energy. Canada also grades favorably with quotients of -0.1% in 2008 and 0.7% in 2009.



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