If there is no inflation, why did the cost of my lunch just go up 25 cents, people are asking. Are you one of the people who just paid an extra quarter AGAIN for lunch at the restaurant where you eat on the weekend? Or what item have you noticed that either costs more now or the portions are smaller?
If we have no inflation and deflation is the risk, why are people seeing things like this?
The bailouts last year put trillions of cash into the system, supposedly until our experts decide it is safe to take the extra liquidity out. As the time drags on to reduce the liquidity overhang, experts raise the question of WHEN, not if inflation will start raging.
The last time this process happened and our politicians were helping us, they publicized a misery index. Last month, the number was 12.72 for December 2009. The all time low was 2.97 in 1953. The highest number was a staggering 22 in 1980. Think of the pressures of high inflation and high unemployment at the same time and the impact on your business or customers business.
You can learn more than you really wanted about the misery index by the website with that exact name.
It says the misery index was initiated by economist Arthur Okun, an adviser to President Lyndon Johnson in the 1960s. It is simply the unemployment rate added to the inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country. A combination of rising inflation and more people out of work implies deterioration in economic performance and a rise in the misery index.
A number of experts suggest the index is manipulated by the party in power to reduce both the level of unemployment shown and inflation. The most comments in that area say the unemployment rate is artificially low since people who drop out of looking for a job until the economy improves stop showing up in unemployment numbers. Think about the artificial levels that interest rates on Certificates of Deposits and money markets are being held to help banks and financial institutions restore their battered equity and slowly bleed off losses in their loans and investments over time.
How should you look at the misery index and its impact over the next year in your business and personal life?