Hyperinflation and Its Causes and Examples

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Hyperinflation and Its Causes and Examples

Hyperinflation can be referred to as a situation where there is an excessive, rapid, and uncontrollable increase in the price of commodities in an economy (Simonson, 2021). Other economists define hyperinflation as accelerating inflation or very rapid inflation, often with more than 50% per month. It is a sporadic event, it has occurred in many countries like Germany, Congo, and Zimbabwe. Hyperinflation is different from other types of inflation due to its severity of cost increases (Amadeo, 2021). When hyperinflation takes effect in an economy, consumer behaviors change. People will begin hoarding commodities to avoid paying more for the same commodities in the future, and the most common commodities prevalent in hoarding are durable goods like automobiles and jewelry. People tend to hoard perishable commodities incase hyperinflation persists, this include household items like milk, rice and flour. This means that the daily supplies will become extremely scarce, and if available, they will be sold at exorbitant prices to consumers.

Individuals with savings in various financial institutions will be the worst hit in case there is rapid inflation. This is due to the fact that their savings will lose value as a result of the devaluation of currencies. Going by this, the most affected group of persons are the elderly since they tend to save a large chunk of money in financial institutions. In addition, the importers of commodities find it very expensive to import products due cost of items. As a result, some companies close business creating unemployment. However, not all parties suffer from hyperinflation, for instance, individuals who took up loans from financial institutions will benefit from rapid inflation due to the collapsing value of the currency, rendering the debts worthless.

The main causes of hyperinflation are excessive money supply in the economy and demand-pull. Under excessive money supply, often the government tries to mitigate increased unemployment, bankruptcies, and less money supply by printing more money and releasing it to the market. Printing of money must be support the economic growth of any specific country, otherwise it might create hyperinflation. The printing of more money occurs during civil wars or external wars (Tamimi & Orban, 2020). Excessive demand for commodities occurs when the demand from consumers outweigh the supply of the goods. The shortage in the supply of goods in the economy technically increases the prices of the goods. The sellers will be devising ways not to deplete their stock or inventory, and the best way to do it is by increasing the price of goods.

As much as hyperinflation is a rare occurrence, the government needs to protect its country from the effects of hyperinflation by initiating sound financial habits and ensuring the market is stable. As for individuals, it is important to be aware of the worst situations that can occur as a result of information. This enables them to take appropriate strategies and diversify their portfolio, since hyperinflation will affect every apsect of life.

References

Amadeo, K. (2021). Hyperinflation: Its causes and effects with examples. Web.

Simonson, H. (2021). What is hyperinflation. Web.

Tamimi, O., & Orban, I. (2020). Hyperinflation and its impact on the financial results. Intellectual Economics, 14(2), 5-16.

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