Australians are experiencing the most drawn-out period of economic misery for more than a decade, according to new research.

A new analysis from the Committee for Economic Development of Australia (CEDA) — an independent public policy think tank — has found that inflation made up about half of the misery felt across Australian households between mid-2021 and mid-2023.

The research explored the misery index from 2007 to the end of June this year. 

The analysis found Australia's economic misery had decreased from the peak experienced after the COVID-19 pandemic but remains high.

Economist Liam Dillon from CEDA said the key economic measures included in the index, such as inflation, unemployment and interest rates, have had a cumulative effect leading to miserable outcomes.

Economic misery is being 'over-egged'

Not all economists agree that Australia's economic misery is as bad as the new research from CEDA has suggested. 

Ben Phillips from the Australian National University said he thought the early 1990s recession was a more apt example of serious economic misery.

"It's a little bit over-egged, or a little overblown. I don't really think at the moment Australia's in a period of serious economic misery," he said.

 "It's true that things are a little tougher for some at the moment, particularly those with a mortgage.

Dr Phillips said unemployment was a key indicator in gauging how difficult the economy was for people.

"The labour market remains pretty strong. We've got participation rates that are about as high as they've ever been. Not everything's rosy, and there's a reduction in living standards as a result of high inflation," he said.

"But I think economic misery is not really the right term. I think the misery index, there is something useful to be gained from it, but it's a fairly simplistic measure that perhaps probably over overstates the situation at the moment."

Why are interest rates falling in other OECD countries?

University of NSW economist Richard Holden said the underlying issue was the cost of living crisis driven by inflation.

"Since that time, prices in general are about 15 per cent higher than they used to be. So that means all else equal, everyone's standard of living has gone down," he said.

"There have been some wage rises, obviously, but that hasn't, in the aggregate, offset those big inflationary price increases ... So people are a lot worse off just in terms of the cost of living because of inflation."

Professor Holden said other OECD nations such as the United States, the United Kingdom and New Zealand were experiencing rate reductions now because their respective central banks were quicker to raise interest rates.

"Most of those jurisdictions have got inflation well under control because they took their medicine early on," he said.

"We haven't done that. And so the RBA zone strategy was just going to have to wait longer. So Australians are going to have to sit there with these elevated interest rates for longer."

Productivity is the key to improving inflation, expert says

Professor Holden said during the 1990s and most of the 2000s, reforms made by both Labor and Coalition governments grew Australia's productivity by about 2.5 per cent a year.

"Since then, it's been slower. It's been about half that rate ... around 2019, or so, it's really been zero or declining," he said.

He explained productivity wasn't about working longer or harder but rather about how much gets produced in a certain period.

"So it's really about the ability of businesses and workers to work together, to produce more, if you like, work smarter," he said.

That's why Professor Holden believes the most important issue for governments across all levels to ease economic misery is productivity. 

"We've got declining productivity growth, productivity is going backwards. That just makes everything harder in terms of fighting inflation and trying to deliver reasonable wage increases," he said.