Hyperinflation is a period where the prices in the Consumer Price Index (CPI) increase by more than 50% per month. While a rate of inflation of 2% or less per year is common in a healthy economy, hyperinflation causes the price of goods to escalate uncontrollably, leaving consumers unable to afford basic goods. Though hyperinflation is rare in developed countries, if it occurs, it can be catastrophic. If a nation's currency becomes devalued too quickly, they may have to abandon it and adopt a more successful currency, as was the case with the former Yugoslavia during the 1990's. The theft of funds from the government forced the nation to print more money to pay off its debts. Inflation reached a peak rate of 300 million% per month, which effectively annihilated the value of their currency. Eventually, the nation had to adopt the German mark in order to stabilize the economy.Hyperinflation Definition
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Hyperinflation is a period where the prices in the Consumer Price Index (CPI) increase by more than 50% per month.
If an increase in the money supply is not supported by growth in GDP, businesses must raise prices to stay afloat. With more money on hand, consumers pay the higher prices, leading to a vicious cycle of price increases. This can lead to the currency being quickly devalued.
While a rate of inflation of 2% or less per year is common in a healthy economy, hyperinflation causes prices to escalate uncontrollably, leaving consumers unable to afford basic goods.
Hyperinflation is often the consequence of a serious economic depression.
Though hyperinflation is rare in developed countries, if it occurs, it can be catastrophic. In Yugoslavia during the 1990's, inflation reached a peak rate of 300 million% per month, which effectively annihilated the value of their currency.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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