Hyperinflation anyone?

By Randell Tiongson on May 25th, 2011

The rising cost of goods and services have been a big concern to us Filipinos for many months now. Official numbers puts inflation at around 4% but it seems that the rising prices goes beyond the official numbers. Generally, the barometer to measure inflation is the Consumer Price Index of the CPI. An earlier 3 part blog delved a lot about the rising prices and how we can survive amidst the higher cost of goods and services. For me, CPI is not a very realistic measurement of personal inflation since there are many items in our budget that are not being measured in the index such as education, among others. We all experience that tuition and education related expenses are somewhere between 5 to as much as 12% and if education composes a big chunk of our budgets, actual realized inflation will be much higher than the index.

Read Rising prices blog, part 1, part 2, part 3

I was listening to a podcast earlier and hyperinflation in Zimbabwe was referred to in a coy manner. Zimbabwe has suffered an incredible rise in prices in the past that actual measurement of inflation is rather moot. It was said that hyperinflation in that African country was so bad that prices doubles every 30 hours or so.

Just what is hyperinflation anyway? Investopedia has this to say:

Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless.

Investopedia further explains…

When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value.

When associated with wars, hyperinflation often occurs when there is a loss of confidence in a currency’s ability to maintain its value in the aftermath. Because of this, sellers demand a risk premium to accept the currency, and they do this by raising their prices.

One of the most famous examples of hyperinflation occurred in Germany between January 1922 and November 1923. By some estimates, the average price level increased by a factor of 20 billion, doubling every 28 hours.

The experience of Zimbabwe is now for the books… they actually have multi-billion dollar notes so the term ‘Billionaire’ does not really mean anything there. The good news is Zimbabwe has since been able to curb its unbelievable hyperinflation and is trying to put it’s macroeconomic situation in order.

Looking at the situation of Zimbabwe or even other countries which registers double-digit inflation gives us a bit of relief and we must acknowledge that we are still a blessed nation despite our many issues.  There are many things we should be thankful for, we just need to be reminded from time to time.

Let them thank the LORD for his steadfast love, for his wondrous works to the children of man! – Psalm 107:15 (English Standard Version)

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Hyperinflation anyone?