Hyperinflation is used to describe situations where the prices of goods and services rise uncontrollably over a defined time period. In other words, hyperinflation is rapid inflation.
Hyperinflation is when the prices of goods and services rise more than 50% per month. At that rate, a loaf of bread could cost one amount in the morning and a higher one in the afternoon.
Causes Of Hyperinflation:
Hyperinflation has two main causes: an increase in the money supply and demand-pull inflation which significantly affect the Gross Domestic Product of the nation.
The increase in the money supply is often caused by government printing and infusing more money into the domestic economy. As there is more money in circulation, prices rise.
Demand-pull inflation occurs when a surge in demand exceeds supply, sending prices higher. This can happen due to increased consumer spending due to a growing economy, a sudden rise in exports, or more government spending.
Hyperinflation tends to occur during a period of economic turmoil or depression.
Countries that have suffered horrendous inflation rates are Germany, Venezuela, Zimbabwe, and the United States during the Civil War. Venezuela is still trying to cope with hyperinflation in the present day.
Effects Of Hyperinflation:
– To keep from paying more tomorrow, people begin hoarding. This creates shortages. It starts with durable goods. If hyperinflation continues, people hoard perishable goods, like bread and milk. These daily supplies become scarce, and the economy falls apart.
– People lose their life savings as cash becomes worthless. For that reason, the elderly are the most vulnerable to hyperinflation.
– Hyperinflation sends the value of the currency plummeting in foreign exchange markets. The nation’s importers go out of business as the cost of foreign goods skyrockets. However, there are two winners in hyperinflation. The first, are those who took out loans and find that higher prices make their debt worthless by comparison until it is virtually wiped out. Exporters are also winners because the falling value of the local currency makes exports cheaper compared to foreign competitors. Additionally, exporters receive hard foreign currency, which increases in value as the local currency falls.