Hyperinflation is when prices go up by more than 50% per month or 1,000% annually. These massive price changes happen quickly, making common items unaffordable. Hyperinflation, a rare economic phenomenon that the U.S. has not experienced, is extremely rare.
Hyperinflation is caused by an excess supply of money in a larger economy or demand-pull inflation.
Insufficient money supply
Hyperinflation is a rapid increase in money in circulation by central banks, such as issuing stimulus payment.
In order to stimulate economic growth, more people need to borrow and spend more money. Businesses won’t sell their products if the majority of people don’t spend this extra money. To keep their business afloat, owners might have to increase the prices of products that don’t sell.
As money loses its value, it creates a cycle where inflation continues to rise. This can lead to hyperinflation.
Hyperinflation may also be caused by demand pull inflation. This is where the demand for goods or services exceeds the supply, causing prices to rise.
If you and your friend want to buy bread, but there is only one loaf left at your local grocery store, you can both bid to be the highest bidder. Your friend might have $10, while you may only have $9. Although the loaf of bread might be only $3 in value, the grocery store can charge more because of high demand.
Imagine a bread shortage in the country, resulting in a bidding war that leads to astronomical bread prices and demand-pull inflation.
Currency loss of trust
People often lose faith when their currency is under pressure. People will often attempt to exchange their currency for items that are more stable. People may even choose to switch to a more stable currency.
Hunger and hoarding
People can’t afford to buy consumer goods when they become too expensive. People can become obsessed with hoarding in fear of not being able to afford basic necessities. Hyperinflation is a sign that people are becoming hyperinflation. This can cause food shortages, which in turn can lead to poverty.
Hyperinflation can lead to recessions and depressions in economies. The currency of a nation can collapse completely, which could halt economic progress.
Is hyperinflation happening in the U.S. right now?
The rate was 7.7% in the 12-month period up to October 2022. This is 0.4% more than September. To be classified as hyperinflation, inflation must rise by 50% within a single month. Inflation in the United States reached an all-time high 30.19% during the Revolutionary War, 1778.
The highest inflation rate since 1919’s introduction of the Consumer Price Index was 23.7% in June 1920.
Between 2007-2009, Zimbabwe suffered severe hyperinflation. The government issued a ZW$100 billion bill. Inflation was 5.4% at the time of independence for Zimbabwe in 1980. Economic decline and rising debt caused the country’s hyperinflationary phase. The nation’s output was affected by droughts and redistribution farmland, which led to a reduction in the number of farmers.
Also, the government paid war veterans bonuses and tried to offset this expense by tax increases. Zimbabwe began printing money because of the unpaid bills. Although people had more money than ever before, they couldn’t afford basic goods because a pack coffee beans costs just shy of ZW$1billion.
Germany owed enormous war reparations debts after World War I. Germany couldn’t afford to import goods and its colonies were lost, so it could not use them for low-cost materials.
The combination of hoarded cash returning to circulation after the war created an inflationary nation. Prices had increased by 700% by July 1922. Pillows of money couldn’t buy basic goods and farmers wouldn’t sell their produce to make money that wasn’t worth it.
How can you combat hyperinflation
Hyperinflation is a condition in which there’s little that you can do on your own. Societies can often experience full-scale collapse as people struggle to pay their basic needs. Hyperinflation is rare.
Protecting your cash from high inflation can be a complicated task. There are many steps you could consider, including: