ChartBrief #13 European Misery Index
The latest Eurozone unemployment and inflation data were just released with the unemployment rate still stuck at 10.1% and headline inflation creeping up to 0.4% y/y (0.2% previous, and core inflation at 0.8%). Whenever I see the unemployment rate and inflation rate in close proximity I think of the “Misery Index” – the sum of the two, so what better opportunity than to put a graph up of the European Misery Index!
The chart shows the misery index for the Eurozone (unemployment rate + core CPI inflation rate) — inverted (so higher misery is in the lower part of the graph). Reason I invert it is because I also have the Eurozone consumer confidence index on there and strangely enough the consumer confidence index tends to correlate pretty well with the misery index. This makes sense, a falling unemployment rate and relatively contained inflation makes life easier for consumers, whereas high unemployment and/or high inflation makes life tough and so consumer confidence should be lower in that environment. In order for the misery index to continue to head higher inflation needs to actually not go higher, as the ECB would like, and the unemployment rate would need to continue down (seems to have stalled recently)… Neither seem likely to move much in the near term, so consumer confidence is also likely to be range bound around current levels.
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Bottom line: The Eurozone Misery Index has improved to around its long term average, but further improvement may be hard to come by.