Hyperinflation: history of runaway inflation
The latest data provided by the National Statistics Institute (INE) shows that in July, prices rose by 10.8% year-on-year. A rate of inflation not seen since 1984. But what would happen if prices continued to rise rapidly and uncontrollably? Joan Benedicto, 11Onze agent, explains what is hyperinflation and details some historical examples.
Before understanding what hyperinflation is, we need to be clear about what inflation is, as Benedicto explains, “inflation is defined as the generalised and sustained increase in the prices of goods and services in a country, over a given period of time”. However, we can speak of hyperinflation when there is “an uncontrolled, excessively high rise in prices of at least 1,000%”.
The rapid rise in prices, together with the loss of the real value of the currency, leads to a large reduction in the monetary wealth of the population. As the 11Onze agent explains, “if I buy a loaf of bread, and in my country there is 1,000% inflation, this loaf of bread, after a year, will cost €11 instead of €1”.
Moreover, it should be borne in mind that in real cases of hyperinflation throughout history, price rises have been much more disproportionate than in the previous example. Likewise, the social and economic consequences of these hyperinflations are still having a major impact on the world economy.
Hyperinflations throughout history
The most paradigmatic recent case of hyperinflation is possibly that of Venezuela, which in 2018 “went on to have an inflation rate of approximately 130,000%“, notes Benedicto. Although its economy has shown significant recovery, with “inflation below 700% in 2021”, and the end of the inflationary spiral in 2022, the effect of this prolonged crisis is reflected in the daily reality of Venezuelans, who see how a significant part of the population continues to suffer the risk of extreme poverty and food insecurity.
Another case is that of 1923 in the Weimar Republic, today’s Germany. After the First World War, the country was in dire economic straits and had no gold reserves to meet the payments of the Treaty of Versailles. The mark was devalued and, as 11Onze’s agent explains, “five years after the war, inflation reached 665 million per cent”.
We cannot conclude this brief compilation of hyperinflations throughout history without mentioning the Hungarian hyperinflation of 1946. After the devastation of the Second World War, the economy was so badly damaged that prices doubled every day and, as Joan Benedicto points out, “hyperinflation peaked at 41.9 trillion per cent, without doubt, the worst case of hyperinflation ever known”.
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