What is hyperinflation? | American News


Hyperinflation is a phenomenon in which the prices of goods and services in an economy increase uncontrollably over a short period of time.

Inflation is generally considered hyperinflation if prices increase by 50% or more in a month, which corresponds to an annualized inflation rate of at least 14,000%. In a hyperinflationary environment, the prices of common goods like a loaf of bread or a gallon of gasoline can rise dramatically in just a few hours. Fortunately, while most of the world’s developed economies have experienced several periods of high inflation, hyperinflation is extremely rare.

What causes hyperinflation?

Hyperinflation is usually triggered by an imbalance between supply and demand for goods and services. Hyperinflation can be caused by a large increase in a country’s money supply. Historically, these types of increases occurred when central governments printed huge sums of money to fund wars or pay off large debts. As the supply of fiat money increases, its purchasing power falls. As a result, consumers may be forced to spend twice as much on the same goods and services as they did a few months ago.

Demand-driven inflation can also lead to hyperinflation in extreme cases. Demand-pull inflation occurs when the demand for goods and services is much higher than the supply, causing prices to rise to extreme levels. A large-scale macroeconomic event, such as a pandemic or war, can disrupt supply chains, creating large-scale supply shortages. If these shortages become extreme enough, consumers could be forced to pay extremely high prices for limited quantities of basic necessities.

There is also a psychological component to hyperinflation in that the higher prices rise, the more consumers may be driven to buy and hoard products that are in short supply. Rising prices lead to higher demand, increasing demand pressures and tight supplies, and a dangerous positive feedback loop is created.

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Inflation is the rate at which the prices of goods and services increase in a given economy. Inflation often gets a bad rap with consumers because it’s responsible for driving up the prices of groceries, rent, and other basic necessities. However, economists consider low and steady inflation to be a healthy part of a growing economy. In fact, the US Federal Reserve has an explicit long-term goal of achieving and maintaining US inflation of 2%.

When inflation reaches the level of hyperinflation, it is no longer low or stable. Hyperinflation is considered inflation out of control and can be a sign that an economy is overheating, a currency is collapsing, and a serious economic crisis is looming.

Hyperinflation can have several extremely harmful effects on an economy. One of the first things to happen historically during periods of hyperinflation is that fearful consumers begin to hoard goods, which exacerbates supply shortages and pushes prices even higher. As the value of the local currency falls, citizens and investors may start panicking, withdrawing money from banks and exchanging the falling currency for other currencies or assets. These bank runs can undermine the stability of the financial system, and selling pressure from investors can further depress the value of the local currency in the foreign exchange markets.

Once the value of the local currency drops so far that consumers can no longer afford to buy even basic goods and services, the economy and the local currency can completely collapse. In the most extreme cases of hyperinflation, nearly all the wealth in the economy is destroyed, including the life savings of many working class citizens.

Due to its self-perpetuating nature, it can be extremely difficult to reverse severe hyperinflation. However, central banks have several ways to try to reverse high inflation to prevent it from becoming runaway hyperinflation.

Governments can impose price and wage controls that make it illegal for prices and wages to exceed certain levels. Unfortunately, price controls have historically had limited success in reducing inflation.

Central banks can also implement restrictive monetary policy measures in an attempt to calm an overheated economy. By raising interest rates, central banks can make credit more expensive and reduce consumer and business spending. Lower spending means lower demand, which can help alleviate tight supplies.

The best-known example of hyperinflation occurred during Germany’s Weimar Republic in the 1920s. From the start of World War I until November 1923, the German government issued 92.8 quintillion paper marks to pay Germany’s war debts. From 1914 to 1923, the value of the mark fell from about 4.2 marks per US dollar to about 4.2 trillion marks per dollar.

In the United States, the Confederacy experienced hyperinflation during the Civil War thanks to the Confederate government aggressively printing bills to fund the war. During the conflict, commodity prices rose more than 9,000% in Confederate currency.

The United States has never experienced hyperinflation, but the unprecedented government stimulus measures taken during the COVID-19 pandemic have increased a measure of the country’s money supply, known as M2, by 15, $4 trillion in January 2020 to over $21.6 trillion in January 2022 and helped push inflation to its highest level in about four decades. Although there appears to be no signs of hyperinflation at this point, every American should understand the red flags of hyperinflation and its potentially devastating fallout.

  • Debt reduction. Virtually the only benefit of hyperinflation is that individuals or entities with large debts in the local currency can see their debt burden greatly reduced. Inflation and hyperinflation generally transfer wealth from creditors to borrowers.
  • Exports. High inflation can also make exported goods cheaper for foreign buyers and stimulate demand for exporters. However, it is important to understand that even these potential benefits of high inflation are no consolation to exporters or borrowers if their local currencies and economies completely collapse due to hyperinflation.

  • Decline in purchasing power. Consumers lose the ability to pay for the commons.
  • Currency devaluation. In severe cases of hyperinflation, virtually all local currency wealth is completely wiped out and the value of the currency essentially drops to zero. This wealth reset may include the life savings of many working class citizens.
  • Wide and negative economic consequences. Even when the economy avoids total collapse, hyperinflation can lead to soaring interest rates, shortages of essential goods, bank runs and bankruptcies, and severe economic recession or depression.


No. Annual inflation in the United States peaked at nearly 30% in 1778 during the Revolutionary War and just over 20% in 1917 during World War I.

Not yet, at least. The Federal Reserve has implemented four rounds of quantitative easing since the 2008 global financial crisis, and the United States has yet to experience hyperinflation.

No. A stable low level of inflation is a perfectly healthy part of a growing economy. The US Federal Reserve has declared its long-term target inflation rate to be 2%.


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