While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.
Whereas normal inflation is measured in terms of monthly price increases, hyperinflation is measured in terms of exponential daily increases that can approach 5% to 10% a day. Hyperinflation occurs when the inflation rate exceeds 50% for a period of a month.
Although hyperinflation is a rare event for developed economies, it has occurred many times throughout history in countries such as China, Germany, Russia, Hungary, and Argentina.
Hyperinflation can occur in times of war and economic turmoil in the underlying production economy, in conjunction with a central bank printing an excessive amount of money.
Hyperinflation can cause a surge in prices for basic goods—such as food and fuel—as they become scarce. While hyperinflations are typically rare, once they begin, they can spiral out of control.
Why Hyperinflation Occurs
Although hyperinflation can be triggered by a number of reasons, below are a few of the most common causes of hyperinflation.
A depression is a prolonged period of a contracting economy, meaning the growth rate is negative. The response to a depression is usually an increase in the money supply by the central bank. The extra money is designed to encourage banks to lend to consumers and businesses to create spending and investment.
Companies selling goods within and outside the country demand a risk premium for accepting their currency by raising their prices. The result can lead to exponential price increases or hyperinflation. If a government isn't managed properly, citizens can also lose confidence in the value of their country's currency. When the currency is perceived as having little or no value, people begin to hoard commodities and goods that have value.
Examples of hyperinflation
There have been many examples of hyperinflation over the years. Some of the most notable include:
Hyperinflation can take virtually your entire life's savings, without the government having to bother raising the official tax rate at all.
