YOU might not believe this but you are happy. Smile.

Sure, grocery prices are going to rise by $1300 in the next two years and interest rates are heading for ten per cent. And yes, the stock market slump has stuffed the plans of thousands of baby boomers who wanted to retire, and hundreds of us are barely able to keep up with electricity price rises, but Australians are the happiest people in the world.

That is according to the Organisation for Economic Co-operation and Development (OECD) and its new Better Life Initiative index.

Do you believe it? Tell us below. Are you happy?

The organisation compared people in the 34 OECD member countries, using 11 indicators - such as income, education and health - weighted equally and Australians topped the pack.

Along with the 11 factors the OECD associates with a "good life," the index takes into consideration citizens' answers to quality-of-life questions like, "How satisfied are you with your life?" "How would you describe your health?" and "Do you know someone you could turn to in a time of need?"

So we are either happy, or just bad at filling out surveys.

In order, the next nine happiest countries were: Canada, Sweden, New Zealand, Norway, Denmark, the US, Switzerland, Finland and the Netherlands.

The index will eventually include the OECD's six partner countries - Brazil, China, India, Indonesia, Russia and South Africa.

Looks like our Prime Minister isn't buying it either.

Julia Gillard today acknowledged some households are doing it "pretty tough" despite the Australian economy being the envy of the the world.

As she spruiked the benefits of a resources boom, Ms Gillard admitted some people were struggling with cost-of-living pressures.

"Those pressures are real," she told ABC Television.

"Macro economy, we are the envy of the world ... but around the kitchen table people are looking at bills, are looking at the cost of living and are finding it pretty tough.

The government had addressed that with increased family payments, Ms Gillard said.

So maybe it's government cash that is making us happy?

With AAP