Improvement in three key economic indicators since 2023 has now been completely reversed, new CEDA analysis of the “misery index” shows. 

Sticky inflation, climbing interest rates and increasing unemployment mean misery is now back at its post-pandemic highs. It is expected to remain well above recent historical averages through to the end of 2028, based on current trends. 

The analysis also shows that the drivers of economic misery have shifted. The labour market – once the leading contributor to ‘misery’ – has been a source of strength for Australia since the pandemic. Instead, higher prices and interest rates are the main source of the current spike.  

Misery is not felt equally, with each component of the index experienced differently by different people. Pushing one down can often involve moving another up, shifting the burden rather than lifting it. This is why productivity growth – the only lever that can lower all three drivers of misery – matters so much.  

Through most of the 2010s, unemployment was the biggest contributor to Australia’s economic misery. Across that decade, unemployment averaged 5.5 per cent and peaked at 6.3 per cent in late 2014. Meanwhile, interest rates averaged 2.6 per cent and inflation 2.1 per cent.

Since the pandemic, however, the opposite has been true. Unemployment has remained relatively steady in recent years, averaging around 4 per cent between the start of 2022 and June 2026. That is considerably lower than outcomes in peer countries like New Zealand and Canada, which averaged 4.4 per cent and 6 per cent respectively over the same period.

And though the unemployment rate has been trending up, the economy is still adding jobs, with around 177,000 added since the start of the year. This has helped to insulate many households from the financial effects of rising inflation and interest rates. Though real household disposable income per capita has declined slightly this year, it is still higher on average than in 2023 and 2024.³ Household savings are also higher now than the decade average leading up to the pandemic.

The employment tailwind has supported the Government’s balance sheet as well as households’ through higher receipts of income tax. Of the 40 per cent increase in tax revenue since the pandemic to 2024-25, 87 per cent came from increases in income taxes.

It is important to acknowledge the limitations of aggregate measures like the misery index. While the index provides a useful barometer of the high-level pressures shaping the economy, it does not capture the different ways that inflation, interest rates and unemployment are experienced by different groups of people.

Households that own their own homes or hold substantial savings will come out ahead when interest rates rise.

High inflation, by contrast, falls hardest on people with lower or fixed incomes, who spend a greater share of their income on essentials and have little or no buffer to absorb rising prices. For those who can’t find work and are unemployed, the pain is obvious.

There is also an economic trade-off between unemployment and inflation. In a tight labour market employers must compete harder for staff, pushing up wages. Higher wages must generally be paid for through increased prices, adding pressure to inflation.

This makes lowering the misery index a difficult task. Adjusting policy to alleviate one component often means pushing up another, and all three factors have trade-offs for different individuals.

Overcoming this dilemma can only be achieved through higher productivity.

Businesses that can produce the same amount of output with fewer inputs (or produce more output with the same level of inputs) are able to pay higher wages without having to raise prices.

If enough businesses can boost their productivity, inflation is more likely to remain at sustainable levels and interest rates need not go higher. That combination of higher real wages and lower interest rates can in turn also support growth, helping to keep more people in jobs.

This is why sustained momentum is critical to address Australia’s poor productivity performance. The Government’s 2025 economic reform roundtable highlighted the appetite and priorities for change, but these need to be paired with sustained action. 

With stronger productivity growth comes a stronger economy, and a country with far less to feel miserable about.