- What is inflation?
- Types of inflation
- Hyperinflation is ...
- Causes of hyperinflation and its implications for the economy
- The most famous examples of hyperinflation
Galloping hyperinflation is a very dangerous phenomenon for any state, and no one is immune from it. At the time, hyperinflation almost all countries in the world, even those that are currently the leaders of the world economy, got sick.
In this article we will consider not only the main causes of hyperinflation, but also its consequences for the state’s economy.
What is inflation?
First you need to figure out what inflation is in general.
The word is of Latin origin (inflatio - bloating). This is the process of raising prices for goods and services. In the people it is also often called the "depreciation of money." With inflation over a period of time, a person can buy much less goods for the same amount of money.
It should not be any short-term appreciation of certain goods called inflation. After all, this is a time-consuming process that covers the entire market.
The opposite of inflation is a process called deflation in the economy. This is a general decline in prices for goods and services. Short-term deflation occurs quite often and differs, as a rule, seasonality. So, for example, the prices for strawberries in June can noticeably decrease due to its massive harvest by summer residents. But long-term deflation is a rare phenomenon. To date, such an example can be called perhaps the Japanese deflation, which fluctuates within one percent.
Types of inflation
In modern economics, open and hidden inflation is distinguished. The latter was characteristic of states with a command-planned economy (in particular, for the USSR), where these phenomena were tightly controlled by the state.
There is also supply and demand inflation, balanced and unbalanced, predictable and unpredictable inflation. However, the most important is the classification by intensity of manifestation. According to this typology, it is customary to single out inflation:
- and hyperinflation.
Creeping (the most innocuous) inflation is characterized by a moderate increase in prices (within no more than 10% annually). Some experts even consider it to be a positive phenomenon, since it stimulates the further development of production capacity. Such inflation, as a rule, is easily controlled by the state, but at any moment there is a risk that it will grow into more complex forms.
Galloping inflation and hyperinflation are more dangerous for the economy. In such a situation, the state should take a set of anti-inflation measures.
Hyperinflation is …
What is the difference between this form of inflation?
Hyperinflation is a phenomenon in the economy, which is accompanied by extremely high price increases - from 900% to millions of percent per year. Most often, it leads to a complete collapse of the commodity and financial system in the country and is accompanied by absolute distrust of the national currency by the population.
During hyperinflation, money can lose its main functions altogether. In the not so distant history, there were examples when at this time money was replaced by barter (so-called barter). Or in their role played any product (just like in the early stages of development of society). It could be sugar or cigarettes. Sometimes hyperinflation in a certain country is accompanied by dollarization - when the national currency (partially or completely) is supplanted by the most stable world currency.
Hyperinflation is, first of all, a kind of indicator of a deep economic crisis in the state. In other words, if we draw an analogy with medicine, it is not the “disease” itself, but only one of its painful and unpleasant symptoms. Other concomitant signs of such a crisis can be a massive impoverishment of the people, numerous bankruptcies of enterprises, a default on foreign debts of the state, and so on.
Causes of hyperinflation and its implications for the economy
Illiterate or criminal government actions most often create the prerequisites for this phenomenon. When the state tries to hide its expenses and budget deficit by issuing (additional issue of banknotes), then such actions will eventually lead to hyperinflation. After all, these printed money is not backed by real commodity production. Of course, all this will entail a rise in prices, the pace of which will depend on the amount of money printed, as well as on some other factors.
An additional cause of hyperinflation can also be a massive withdrawal of money from circulation - to bank deposits. However, during the economic crisis, as a rule, opposite trends are observed.
What causes hyperinflation? Its main consequences are the general decline in production, the depreciation of savings, and the total collapse of the financial system in the country.
The most famous examples of hyperinflation
Many countries in the twentieth century experienced hyperinflation. Below are the three most record examples of this phenomenon in the history of the world economy:
- Zimbabwe, the beginning of the XXI century. The inflation rate was 230 000 000% per year.
- Hungary, 1946. The inflation rate was 42 quadrillion percent.
- Yugoslavia, the end of 1993. The inflation rate was 5 quadrillion percent.
In the modern world, Zimbabwe is considered to be the most vivid example of hyperinflation. In the photo below - the famous bill of one hundred trillion Zimbabwean dollars.
Hyperinflation is a type of inflation, which is characterized by extremely high rates of annual price growth (from 900 to several million percent per year). So, in Zimbabwe in 2008, food prices increased at a record speed - one and a half times per hour.
Inflation and hyperinflation (in particular), as a rule, accompany deep economic crises, the consequences of which can be extremely difficult for a particular state.