Hyperinflation

We’re all familiar with the term inflation. It presents a rise in prices or a fall in purchasing power. If we’re talking about a currency, it means you need more money to achieve the same thing. But today, we’re talking about hyperinflation.

And the word is pretty self-explanatory. Hyperinflation is inflation when it runs amok, goes far out of control, and causes a dire economic state.

Different economists draw the line in different places, but it’s fairly easy to differentiate between regular inflation and hyperinflation. Some degree of inflation is normal, and central banks strive to reach a steady inflation level. For example, in the US, the Fed aims for a 2% inflation rate, with any more than that considered high inflation. However, that’s a year-on-year statistic, and even if it reaches 10%, which is a massive inflation rate, it still isn’t hyperinflation.

Hyperinflation occurs when inflation exceeds 50% per month. And once it does happen, it tends to run rampant, with huge swings in day-to-day currency value. Needless to say, it’s not common in developed countries, but it has happened in the past.

When it does happen, a lot of economic rules go out the window. Day-to-day life also becomes much more difficult as the massive price shifts and currency devaluation can grind many things to a halt. From one day to the next, your money may become nearly worthless.

And on top of your money losing value, the prices of essential goods also tend to soar. Their demand exceeds the supply, and as a result, the consumer basket gets much more limited.

Hyperinflation is generally a combination of a halt in production and a government overprinting money. If the government overprints and the monetary value isn’t supported by a country’s GDP, businesses can raise prices, and it spirals from there.

Again, if you live in a developed country, hyperinflation is unlikely to be a factor in your life. But if you want to hedge against it, just in case, you can do a few things. First is keeping your investment portfolio diverse, with at least some assets from other countries. Next, having commodities and real estate can alleviate economic pressure. Lastly and most effectively, you can keep a part of your money in a different currency than your country’s.