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What is the meaning of an increasing misery index and how does it affect you?

Proshare

Friday, January 20, 2016/ 3.35 PM / FDC

Definition & Background  

The misery index is an indicator that is used to determine how economically well off the citizens of a country are. It is the sum of the unemployment and underemployment rate and the inflation rate of the particular period. 

These factors are important be-cause they pose economic and social costs to the average income earner. An increase in the misery index is triggered by an increase in either variable, and signifies economic discomfort and negative consumer sentiment.  

Using Q3’2016 unemployment and underemployment rate of 13.9% and 19.7% (the most recent published figures), and De-cember’s inflation of 18.55%, Nigeria’s misery index is 52.15. Due to nationwide job cuts (in the banking and oil sector especially) unemployment is estimated to have risen to 14.5% in Q4’16. This will bring the misery index of the fourth quarter (2016) to a re-cord high of 53.35. This is 21.05 points higher than Q4’14 figures.

 

 

Regional comparison  

Leading the pack of high misery indexes in SSA is South Sudan, whose inflation rate of 457.20% in November 2016 has sent its misery index through the roof. Other countries with high misery index include Angola (67.92), Congo (57.3), Libya (46.9), Kenya (46.3). 

On the other hand, some countries such as Cameroon (4.55), Ivory Coast (5.1) and Uganda (9.5), still maintain low misery indexes. At 52.15, Nigeria’s misery index is among SSA’s top 10.

Implication & Outlook  

Beyond the numbers, what is of most concern is the trend of Ni-geria’s misery index. The index has risen for the last six quarters. If this movement persists, consumers will be hit hard. They will face an even deeper dwindling in purchasing power, as their in-comes can only buy less of their usual consumption basket. The poor will become poorer in real terms, and the middle class will thin out.  

Additionally, climbing misery index implies declining economic ac-tivity and reduced consumption. This is because unemployed people are underutilized and rising prices will discourage rational con-sumers from spending. This can cause or complicate an economic slowdown or contraction. There will also be increased debt, as the FG borrows money to increase social support schemes.  

In the end, the citizens will be left with high uncertainty and low morale.  

Furthermore, it is believed that consecutive rises in the misery index usually lead to a decline in the favourability ratings of the serving administration, and could result in a re-election loss for the incumbent. This was the case for U.S. President Ford and Jimmy carter, whose terms saw the misery index reach all-time highs. Likewise, Nigeria’s 2015 elections reflected this hypothesis.

 

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