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Did you Know? Hyperinflation

Hyperinflation describes excessive, accelerating and out-of-control price increases in an economy, at rates typically measuring more than 50% per month. Ballooning money supply coupled with demand-pull inflation (when demand for goods or services exceeds the supply) are the principal causes of hyperinflation.

At hyperinflation rates, everyday staples might cost one amount in the morning and another by the afternoon. As hyperinflation expectations become entrenched, consumers panic buy goods to avoid paying higher prices later. This activity fuels the hyperinflation, especially if stockpiling causes shortages.

Rapidly rising prices devalue an economy’s currency versus hard currencies where prices are much more stable. Consumers respond by flogging the currency for stable currencies, exacerbating the depreciation. Monetary authorities often respond by printing more money to account for higher prices instead of drastically reducing the money supply. Eventually the currency becomes worthless. 

Zimbabwe is a classic example, with hyperinflation reaching an estimated 79,600,000,000% per month in November 2008 (98% per day)*. Other examples of hyperinflation include the United States during the US Civil War, Germany after WWI and mostly recently Venezuela (ongoing).

* On the Measurement of Zimbabwe’s Hyperinflation, Steve Hanke and Alex Kwok

 

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