While economists and economic policy-makers in Washington struggle mightily to make sense of a slew of often conflicting economic data, from the perspective of most Americans there’s really only one that matters, one that touches them most directly in their daily lives — the Misery Index.

First kicked around in the 1960s, it came into wide-scale public view in 1980 in the wake of an oil shock that sent petroleum prices soaring and the economy into a tailspin. The Misery Index number is computed simply by adding together the inflation and unemployment numbers. A high Misery Index number goes by the name stagflation.

You already read and hear a lot about stagflation in UK media. Not so much on these shores. Not yet. But you will.

Indeed, by tweaking a few stats in ways that merit tweaking, we may soon be approaching the highest Misery Index number ever, the one reached in June 1980 when collective unemployment and inflation numbers totaled a Misery index of 21.98. By way of comparison, the lowest Misery Index number ever was recorded in July 1953 — 2.97.

So then. What’s the Misery Index reading today? If you look backwards and take government stats at face value it’s pretty bad but not yet terrifying. The official CPI for all of 2010 was a very modest 1.2 percent. Atop the official unemployment number these days of 9 percent, this gives you a Misery Index number of 10.2.

But looking backward is silly. We live in the present and will soon be living in the future. Accepting government stats as a total guide is also silly because frankly, these numbers, while not exactly wrong, have been finessed over the years in ways that understate both true inflation as experienced in the real world, and the true nature of employment and unemployment.

Let’s look at inflation. We begin here, of course, by paying no attention to the Federal Reserve’s “preferred measure of inflation” that excludes food and energy costs because human life is impossible without consuming both. The Consumer Price Index, the CPI (which includes both), in December was .05 percent, in January of this year another .04 percent. Consider just that last number and look what almost certainly lies ahead for inflation in the first quarter and probably the second of 2011.

The world Bank has been warning about how surging food prices around the world are causing political unrest. You see it on the news today in Egypt, Libya, et. al. In this country, thankfully, things are not nearly so bad for many reasons. Food prices are nonetheless rising steadying here and given world demand (and various drought and flood failures) will certainly continue to do so— a least for the next few months.

Even without ongoing crises in the Middle East, energy prices will also continue to rise here for some time to come based on simple supply-demand factors (more domestic production in the U.S. is a positive, but it won’t ease prices in the near term). Clothing prices are today rising sharply because of price hikes for cotton and other clothing materials. The same is true for all manner of other raw materials such as copper. As are health care costs. As are…well, you get the idea.

Put it all together in an official CPI that already shot up .04 percent in January and you see an official CPI running at a 5 percent inflation rate in the first/second quarter of this year.

Now about that official CPI number. One economist who has looked back at the way inflation used to be measured in this country four or five decades ago has determined that had the government not made changes in the ways it computes inflation, changes that invariably work to make it look less than it actually is, the official inflation rate today would exceed 10 percent. But let’s not go there. Such an analysis (and its conclusion) is far too debatable.

Rather, just look at a set of inflation numbers generated by a project at MIT, a project which according to news reports tracks 550,000 products sold by 53 leading retailers in this country. It found that during 2010 the annual rate of inflation was 2.5 percent, about two-thirds larger than the official CPI figure.

Let’s therefore assume using MIT data that real world inflation in this country is two-thirds greater than the official CPI number, which as noted above, will likely be around 5 percent in the first quarter or two of 2011. The number that will then get included in our own projected Misery Index for the start of this year is 8 percent.

We come now to employment. And if you think that numbers coming from the government are confused and not a little rigged to hide the truth about inflation, the confusion and rigging is much worse in the employment realm. In fact there are actually two distinct ways the government itself tries to determine who is and isn’t employed — which is why in its last report a pathetic number of new jobs were said to be created, far less than needed to keep up with a growing population, while the official unemployment rate nonetheless plunged from 9.4 to a 9 percent.

Government number crunching in this realm is inherently idiotic in any case. The reason? It treats all jobs equally. You get a job that pays 40 percent less then the one that you lost, with lousy or no benefits, and maybe only keeps you at work 30 hours a week instead of 40, it’s still treated as equal in counting terms when determining unemployment rates. The government does, however, note that while the official unemployment rate is now about 9 percent and likely to hover there, if part-timers are counted separately, the rate jumps to about 16 percent.

A real world employment-unemployment measure would take into account whether new jobs obtained by people who lost their old jobs were better jobs (higher paid, more benefits) or worse jobs (lower paid and lesser benefits), and add to the unemployment number some percentage if lower-lesser new jobs.

I’m going to do that here. It’s admittedly not an exact estimate, but I believe fair-minded readers will appreciate its validity. With this in mind, my own unemployment number to include in a Misery Index for early 2011 is 12 percent.

Now we put together the early 2011 real world inflation and unemployment numbers and come up with a Misery Index of 20, just a tad below the worst it has ever been. And since the job picture is terrible and actual costs to live are clearly rising quickly, we have a dramatic example of stagflation emerging right before our eyes.

More economic misery for more Americans. A nasty bout of stagflation. Wonder how long it will take folks living in the Beltway and Wall Street bubble worlds to notice.

More from this writer at http://blog.wallstreetpoet.com/