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When prices go out of control

You might guess that hyperinflation refers to increases in the price level at very high rates. There’s no official threshold for “very high,” but the four cases shown in the graph are clearly examples of hyperinflation. The most spectacular case in FRED is Zimbabwe: The data are incomplete because in 2009 the country actually stopped reporting inflation, which likely rose several orders of magnitude higher that year. First, to be clear, Zimbabwe’s inflation rate of 24,000% means that prices were multiplied by 241 within a year. Peak hyperinflation in the other three countries has a factor of 42, 32, and 30. Second, why does hyperinflation occur? Generally, it’s because the government takes over the central bank and finances its operations by printing money. As people see this occurring, money loses value and the government has to print even more to stay afloat. This vicious circle can then be broken only by a radical change of practice: In Zimbabwe, that was abandoning the use of the local currency, which is indeed radical, as the country reported deflation in some years since going cold turkey. (Turkey, by the way, also has had periods of very high inflation, but not as dramatic as our examples. We reported on this earlier.)

How this graph was done: Search for “Zimbabwe inflation.” Once you have the graph, use the “Edit Graph” option to open the “Add Line” tab to search for other inflation rates. Repeat until satisfied.

Suggested by Christian Zimmermann.


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