Australia has a bad inflation problem. So why are we middle-of-the pack on the misery index?

Is Australia’s inflation problem worse than the rest of the world’s?

A day after the Reserve Bank delivered its fifth interest rate hike for the year, increasingly stressed mortgage holders would be justified asking.

For Jonathan Kearns, the chief economist at Challenger, the answer is easy.

“Our inflation problem is worse than in other countries, that is very clear,” Kearns says.

The stats tell the story.

Consumer prices on average climbed by 4.3% in the year to September, and are anticipated to climb even faster by year’s end.

A quick survey of other advanced countries, and the eurozone, shows none with inflation near our level.

So far, so bad.

But before we break out the pitchforks, there is an important nuance that’s worth appreciating.

While our cost of living here is rising faster than in comparable countries, our labour market is stronger.

“Our performance in unemployment has been much better than in New Zealand, Canada and in Europe, and that is a positive thing for Australia,” Kearns says.

So should we be upset about having higher inflation than other countries, or relatively satisfied that our labour market has remained strong?

In other words: is the economic pain experienced greater here than in, say, New Zealand or Canada?

A very crude way of answering what is a complex question is the so-called “misery index”.

The concept was thought up by an American economist, Arthur Okun, in the 1970s – when it became popular enough to be weaponised during the 1976 presidential campaign.

The idea is simple: add the rates of unemployment and inflation together to create a very high level view of what households are experiencing.

By this measure, Australia goes from worst of the lot for inflation, to middle-of-the pack in overall misery.

That may not be much comfort, but it does provide some perspective to this challenging economic time we are living through.