Hyperinflation

Hyperinflation is an uncontrolled rise in the prices of an economy. Hyperinflation is generally considered when inflation increases by four annual digits, that is, more than 1000%.

When inflation is accentuated and out of control, a situation is reached in which the prices of a country lose their real value. In this way, hyperinflation produces a reduction in wealth and a very significant loss of the purchasing power of the citizens of a country.

Hyperinflation characteristics

This inflationary phenomenon can generally be caused by the unbridled creation of money after a very aggressive expansionary monetary policy or when there is a sudden loss of value of the economy. It is a type of inflation so extreme that there may even be price increases of up to one million percent annually.

A remarkable feature of hyperinflation is its duration, since it usually develops in short periods of time. That is, specific moments of an economic cycle. Historically, it usually occurs in times of war in countries due to the high spending caused by the conflict, in political crises and serious moments of economic depression .

This inflationary degree could be described as devastating for the economy of a country, since with its absolute lack of control in rising prices, it makes products acquire a very high and unreal value, destroying the middle classes and causing the loss of purchasing power in The real economy. Since wages do not grow so fast and inequality occurs.

Examples of hyperinflation in history

A well-known historical case of hyperinflation took place after World War I in Germany. The Weimar Republic had to face the tax payments on the winning side with the Treaty of Versailles, so it undertook the excessive printing of numerary money (in other words, current bills). As we can see on the cover of the Neue Berliner newspaper at that time, 1 dollar was exchanged for 1 million German marks.

The consequent rise in price limits meant that German producers were unable to carry out their activity. Anecdotally, in 1923 the State came to print bills with a value of 100 million marks, reflecting the level of monetary lack of control of the time.

Another case of hyperinflation took place in Venezuela in 2017 and 2018. In this last year it is estimated that inflation was close to 1,000,000%, that is, a good that cost 100 bolivars on January 1, 2018 cost 1,000. 000 of bolivars on December 31, 2018.

During this year the Venezuelan government made a currency conversion to remove 5 zeros from the bills, since the exponential increase in prices was causing the bills to lose their value every few weeks, having to issue new bills with more zeros . In addition, many supermarket tellers were not prepared to contain so many numbers and calculations of purchases had to be done by hand.

 

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