When most people think of inflation, they think of rising prices. This is one aspect of inflation, but it is not the only one. Inflation also refers to the expansion of the money supply. When more money is available, prices increase as businesses and consumers compete for limited resources. Hyperinflation occurs when inflation spirals out of control, causing extreme economic damage. Let’s take a closer look at these two terms and see how they differ.
At What Point does Inflation become Hyperinflation
Inflation becomes hyperinflation “when the rate of inflation grows at more than 50% a month” [Source]. Other economists argue that inflation is usually measured in monthly price increases, but this is different from hyperinflation, which can be measured in exponential daily increases that can approach 5% to 10% a day [Source].
What are the 4 types of Inflation?
The 4 types of inflation are demand-pull inflation, cost-push inflation, built-in inflation, and hyperinflation. Demand-pull inflation occurs when an “increase in the supply of money and credit stimulates overall demand for goods and services in an economy to increase more rapidly than the economy’s production capacity” [Source]. Such a situation tends to increase demand, and prices rise. Cost-push inflation is “the increase in prices working through the production process inputs.” Built-in inflation is “related to adaptive expectations, the idea that people expect current inflation rates to continue in the future,” but this changes as demand causes a rise in wages to maintain the standard of living. Hyperinflation describes a situation “where the prices of all goods and services rise uncontrollably over a defined time period.”
What Causes Hyperinflation?
Hyperinflation is caused by a significant rise in the money supply not backed up by economic growth. This happens when the government keeps printing money and dishing it into the streets [Source]. Another major cause is demand-pull inflation, in which demands surpass supply.
How to Stop Hyperinflation
Hyperinflation can be stopped by cutting down government expenditures or altering the currency. Governments might need to stop expanding the money supply incurred in overspending and encourage businesses to have faith in their local currency [Source]. Other ways include pegging the value of money to a more stable currency, even extending it to a foreign currency. Dollarization has proved to be an effective way of stopping hyperinflation, and it can bring stability to hiked prices.
Hyperinflation Countries over the Years
Hyperinflation countries over the years include Argentina, Iran, Lebanon, South Sudan, Sudan, Venezuela, and Zimbabwe [Source].
Relationship between Inflation and Hyperinflation
The relationship between inflation and hyperinflation is that both aspects are centered on the increase in prices. Inflations can be defined as the measure of the “pace of rising prices for goods and services,” and hyperinflation is “rapidly rising inflation” [Source]. Inflation, at its acceptable level of 2% or below, can be good for the economy and increase production. It can exceed 50% per month. But hyperinflation is seen as inflation on steroids and is hard to control. Both inflation and hyperinflation affect producers and consumers in an economy.
Difference between Inflation and Hyperinflation
The difference between inflation and hyperinflation is that hyperinflation refers to a “rapid, excessive, and out-of-control general price increase in an economy.” In contrast, inflation is a “measure of the pace of rising prices for goods and services. Hyperinflation is rapidly rising inflation, which means it is another form or type of inflation [Source]. Given its normal rate of 2% or below, inflation can be good or bad for the economy, while hyperinflation, with its rate of over 50% per month, is bad for the economy. It takes a lot of effort to stop hyperinflation compared to reducing inflation. Inflation is characterized by price rise, which is under control, but hyperinflation is dominated by uncontrollable price increases.
What to do if there is Hyperinflation
If there is hyperinflation, it is wise for governments to quickly implement ways of stopping it before prices reach abnormal levels. Consumers might need to continue stocking up on food and other household supplies, which helps when prices go up [Source]. Basic needs can be bought in bulk since they will become scarce due to increased demand and decreased supply. Other ways of surviving hyperinflation include earning other skills such as farming or mechanic, which can bring in more income, purchasing assets like land whose value does not decrease, and getting into real estate.
