Hyperinflation is ... The causes and consequences of hyperinflation for the economy

Hyperinflation galloping is a very dangerous phenomenon for any state, and no one is insured against it. Almost all the countries of the world, even those who are the leaders of the world economy, "became sick with hyperinflation" in due 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 is in general.

The word has a Latin origin (inflatio - bloat). This is a process of increasing prices for goods and services. In the people it is also often referred to as "depreciating money". With inflation after a certain period of time, people for the same amount of money can buy much less goods.

You should not call any short-term rise in price of certain goods inflation. After all, this is a long process in time, which covers the whole market.

The opposite of inflation is a process called in the economy by deflation. This is a general decline in the level of 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 because of the massive collection by the summer residents. But long-term deflation is a rare phenomenon. To date, such an example can be called unless the Japanese deflation, which fluctuates within one percent.

Types of inflation

In modern economic theory, there is an open and hidden inflation. The latter was typical for states with a command-planned economy (in particular, for the USSR), where these phenomena were tightly controlled by the state.

There is also an inflation of supply and demand, a 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 allocate inflation:

• Creeping;
• Galloping;
• And hyperinflation.

Creeping (most innocuous) inflation is characterized by a moderate rise 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 grow into more complex forms.

Galloping inflation and hyperinflation are more dangerous for the economy. In such a situation, the state needs to undertake a set of anti-inflationary measures.

Hyperinflation is ...

What is the difference between this form of inflation?

Hyperinflation is a phenomenon in the economy, which is accompanied by an extremely high price increase, from 900% to millions per year. Most often, it leads to the complete collapse of the commodity and financial system in the country and is accompanied by an absolute distrust of the national currency by the population.

During hyperinflation, money can lose its basic functions altogether. 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, there was a product (just like in the early stages of the 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 replaced by the most stable global 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, this is not the "disease" itself, but only one of its painful and unpleasant symptoms. Other accompanying signs of such a crisis may be mass impoverishment of the people, numerous bankruptcies of enterprises, default on external state debts and so on.

The causes of hyperinflation and its consequences for the economy

Illiterate or criminal actions of the government most often create preconditions for this phenomenon. When the state tries to hide its expenses and budget deficit by means of an issue (additional issue of bank notes), such actions will inevitably lead to hyperinflation after a while. After all, these printed money are 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 printed money, as well as on some other factors.

An additional reason for hyperinflation can also be a massive withdrawal of cash from the turnover - into bank deposits. However, during an economic crisis, as a rule, there are opposite trends.

What causes hyperinflation? Among its main consequences are a general decline in production, depreciation of savings, and the complete collapse of the financial system in the country.

The most famous examples of hyperinflation

Many countries in the twentieth century experienced hyperinflation. Below are three of the most record examples of this phenomenon in the history of the world economy:

1. Zimbabwe, the beginning of the XXI century. The inflation rate was 230,000,000 per year.
2. Hungary, 1946 year. The inflation rate was 42 quadrillion percent.
3. Yugoslavia, the end of 1993. The inflation rate was 5 quadrillion percent.

In the modern world, the most vivid example of hyperinflation is considered Zimbabwean. In the photo below - the famous bill of one hundred trillion Zimbabwean dollars.

Finally...

Hyperinflation is a kind of inflation characterized by extremely high annual growth rates (from 900 to several million percent per year). So, in Zimbabwe in 2008, food prices increased at a record speed - 1.5 times per hour.

Inflation and hyperinflation (in particular) are usually accompanied by deep economic crises, the consequences of which can be extremely difficult for a particular state.