Hyperinflation

When the prices of goods and services rise rapidly, families and businesses suffer.

But on rare occasions, when rising prices sky-rocket out of control, the result can be catastrophic hyperinflation.

Hyperinflation is generally caused by reckless governments who let their money supply grow too fast.

After the First World War, German prices at one point were rising at a rate of 23,000% a year.

This caused the country’s economic system to collapse, creating a political opportunity for the Nazis.

More recently, in the former Yugoslavia, 1993 prices rose around 20% a day.

Later, in July 2008, Zimbabwe’s official inflation rate reached an astonishing 231 million percent.

Typically, hyperinflation leads to a loss of confidence in the country’s currency: with the value of their cash diminishing citizens pursue stable items like gold and foreign currency as safe stores of wealth.

Hyperinflation might not be so bad if it were stable.

People and businesses could plan for the future accounting for high but predictable prices.

However there are no examples of stable hyperinflation.

By its nature, hyperinflation is an uncontrollable and dangerous phenomenon.


Kevin “KAL” Kallaugher has been the resident cartoonist for The Economist since 1978. KAL Draws is a series of animated shorts which was commissioned by The Economist to illustrate finance-related topics like tax, trade and inflation for their specialized dictionary titled Economics A-Z.

Myles Money

Myles writes about money management, debt control, student loans and financial literacy for teens, 20s and beyond. He is also a regular contributor to RealVision TV, where he discusses economic and money-related issues affecting the millennial generation.

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