Tuesday’s decision by the Reserve Bank to leave interest rates on hold reflects the central bank’s attempt to ensure the greatest economic poison of all, inflation, continues its slow downward trajectory.

That said, in the short term this won’t make many Australians with household debt any happier and won’t relieve the Misery Index.

Loading

“Unfortunately, Bullock’s only tool to address this challenge – raising interest rates – also inflicts pain. As the index clearly shows, the combined effect of 13 rate rises since May 2022 and inflation is, well, miserable,” says the CEDA research paper on the Misery Index.

And misery is the arch-enemy of any government, particularly one facing a near-term election. The prevailing economic wisdom is that the government’s recent moves to alleviate the cost of renting and mitigate high-energy bills, and introduce Stage 3 tax cuts, are designed to alleviate misery in the short term, but risk adding to inflation more generally.

Equally, misery is the ally of any opposition government who can gain traction by blaming the government for the economy’s woes.

Meanwhile, the findings of the Misery Index were supported by another report from global market research firm Ipsos which was also released on Tuesday.

The Ipsos Financial Circumstances Report found the proportion of Australians satisfied with their standard of living continues to decline as cost of living pressures remain consistently high.

CEDA and Ipsos note that the levels of misery and satisfaction vary across the population – divided roughly between the older Australians with net savings and younger Australians with mortgages and rents.

CEDA notes that inflation, interest rates and unemployment affect different people in different ways.

Those fortunate enough to own their homes outright or have large savings in the bank will benefit from higher interest rates.

But high inflation disproportionately hurts those on lower and fixed incomes with less financial wiggle room to cope with rising prices.

Ispos is singing from the same song-sheet.

Ipsos public affairs director Ben Brown explains: “The large disparity in current levels of satisfaction with standards of living between Gen X and Boomers highlights the impact that elevated interest rates have had, with a higher proportion of Gen X having taken on relatively high mortgages while interest rates were at an all-time low.

Loading

“On the other hand, Boomers are more likely to have substantially paid down, or even paid off, their mortgages and built up savings, and thus, are more likely to be beneficiaries of higher interest rates.”

The good news is that when rates do begin to fall – which optimists predict could happen as early as November – it will be because the war on inflation has been largely won.

If so, we can begin measuring the happiness index.