Galloping hyperinflation is a very dangerous phenomenon for any state, and no one is safe from it. Almost all countries of the world, even those that are today leaders in the world economy, “suffered” hyperinflation at one time.
In this article, we will consider not only the main causes of hyperinflation, but also its consequences for the state economy.
What is inflation?
First you need to understand what inflation in general is.
The word is of Latin origin (inflatio - bloating). This is a process of raising prices for goods and services. The people also often call it "the depreciation of money." With inflation over a period of time, a person will be able to buy much less goods for the same amount of money.
You should not call any short-term rise in price of certain goods 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 is quite common and usually differs in seasonality. So, for example, the price of strawberries in June may be significantly reduced due to its massive collection by summer residents. But long-term deflation is a rare phenomenon. To date, such an example can be called unless Japanese deflation, which ranges within one percent.
Types of Inflation
In modern economic theory, open and hidden inflation is distinguished. The latter was characteristic of states with a command-planned economy (in particular, the USSR), where these phenomena were tightly controlled by the state.
There is also demand and supply inflation, balanced and unbalanced, predictable and unpredictable inflation. However, the most important is the classification according to the intensity of manifestation. According to this typology, it is customary to distinguish inflation:
- creeping;
- galloping;
- and hyperinflation.
Creeping (the most harmless) inflation is characterized by a moderate increase in prices (within no more than 10% annually). Some experts even consider it a positive phenomenon, as it stimulates the further development of production capacities. Such inflation, as a rule, is easily controlled by the state, but at any time there is a risk that it will develop into its more complex forms.
Galloping inflation and hyperinflation are more dangerous for the economy. In this situation, the state needs to 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 that 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-financial system in the country and is accompanied by an absolute distrust of the national currency on the part of the population.
During hyperinflation, money can completely lose its basic functions. In a not so distant history, there were examples when at that time money was replaced by natural exchange (the so-called barter). Or in their role some kind of goods played (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 fully) is supplanted by the most stable world currency.
Hyperinflation is, first of all, a peculiar indicator of the deep economic crisis in the state. In other words, if we draw an analogy with medicine, this is not the "disease" itself, but only one of its painful and unpleasant symptoms. Other accompanying signs of such a crisis may be the mass impoverishment of the people, numerous bankruptcies of enterprises, default on external debts of the state, and so on.
The causes of hyperinflation and its consequences 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 means of emission (additional issue of banknotes), then such actions will necessarily lead to hyperinflation after some time. After all, this printed money is not backed up 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 reason for hyperinflation can also be a massive withdrawal of funds from circulation - in bank deposits. However, during the economic crisis, as a rule, opposite trends are observed.
What does hyperinflation lead to? Among its main consequences are a general decline in production, the depreciation of savings, and the complete collapse of the financial system in the country.
The most famous examples of hyperinflation
Many countries survived hyperinflation in the 20th century. Below are three of the 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, end of 1993. The inflation rate was 5 quadrillion percent.
In the modern world, the most striking example of hyperinflation is considered to be Zimbabwean. In the photo below - the famous bill of one hundred trillion Zimbabwean dollars.
Finally...
Hyperinflation is a form of inflation, which is characterized by extremely high rates of annual price increases (from 900 to several million percent per year). So, in Zimbabwe in 2008, food prices rose at a record rate - 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 serious for a particular state.