What Is Hyperinflation?

Written by True Tamplin, BSc, CEPF®

Reviewed by Editorial Team

Updated on March 10, 2023

Hyperinflation Definition

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.

Define Hyperinflation in Simple Terms

  • Hyperinflation is often the consequence of a serious economic depression.
  • During a depression, unemployment is high, and so consumers have less to spend on discretionary purchases.
  • In the past, governments have responded to this by printing more money, thinking that an increase in the overall money supply will encourage both consumer spending and bank lending.
  • However, if an increase in the money supply is not supported by growth in GDP, businesses must raise prices to stay afloat.
  • With more money consumers pay the higher prices, leading to a vicious cycle of price increases.
  • This can lead to the currency being quickly devalued.

Hyperinflation Example

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 FAQs

About the Author

True Tamplin, BSc, CEPF®

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.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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