What Is Hyperinflation?

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Hyperinflation describes an unsustainable period of economic dysfunction characterized by price increases of at least 50% per month.

These times of rapid, intense and destructive currency devaluation are typically isolated to a single country’s economy and not experienced worldwide, the way standard inflation often is, and they tend to impact nearly all goods and services economy-wide instead of being compartmentalized.

How Is Hyperinflation Measured?

The globally recognized International Financial Reporting Standards (IFRS) outline five indicators that an economy is hyperinflationary.

1. The population largely hoards its wealth in non-monetary assets or converts it into a stable foreign currency and immediately invests any local currency to maintain purchasing power.
2. The population begins referring to money in terms of a stable foreign currency rather than the local currency.
3. Credit-based sales and purchases occur at prices that reflect the expected loss of purchasing power, even during short credit periods.
4. Prices, wages and interest rates are linked to a price index.
5. The cumulative inflation rate over the previous three years has approached or exceeded 100%.

When all five factors align, Generally Accepted Accounting Principles (GAAP) are used to perform a two-step assessment. 

1. A quantitative analysis is performed on any economy that has a reported three-year cumulative inflation rate over 100%.
2. If the analysis finds the cumulative rate is less than 100%, “judgment is applied in an analysis of historical inflation rate trends and other pertinent economic factors.”

What Causes Hyperinflation?

Three dynamics can contribute to general inflation.

During the post-pandemic era of high inflation, all three forces were at work. 

• Panic purchasing and shelter-at-home mandates caused demand-pull inflation, just as the government flooded the population with stimulus-based spending money
• COVID-induced global supply chain dysfunction triggered cost-push inflation
• A power-balance shift toward labor caused built-in inflation during the recovery period

Hyperinflation, however, adds economic rocket fuel to the equation with the following unsustainable forces.

• The amount of currency in the economy exceeds the value of the goods and services it produces. Put simply, the economy has more money than its GDP can support.
• The government prints more currency to pay its bills, which accelerates devaluation.
• The population begins to barter or use foreign currency as it loses faith in the domestic monetary system.
• People begin hoarding goods as their savings become increasingly worthless, widening the gap between excessive currency and dwindling economic output.

What Does Hyperinflation Look Like to Consumers?

Periods of hyperinflation are moments of intense anxiety for consumers, who experience:

• Rapid and relentless price increases of at least 50% per month, but sometimes much more
• Intense volatility causes substantial price changes daily, or even several times per day. For example, the price of a loaf of bread could easily double from one day to the next
• Widespread shortages of basic necessities due to mass hoarding, panic purchasing and decreased output
• Household savings become meaningless as purchasing power evaporates
• Unemployment soars through widespread business failures, leading to mass poverty
• Panic and social unrest can trigger political instability and, eventually, societal collapse

Does Anyone Benefit from Hyperinflation?

Borrowers with fixed debt, such as homeowners with fixed-rate mortgages and businesses with fixed loans, can benefit in the short term because they can repay their debt with increasingly worthless money.

However, any benefits are strictly short-term. If you own a home or business in a country collapsing into hyperinflation, those assets are doomed cargo on a sinking ship.

Has the U.S. Experienced Hyperinflation?

Although the Confederacy experienced hyperinflation during the Civil War, the United States has not. In general, wealthy, developed countries with diverse economies and robust institutions like central banks have so far proven immune to the catastrophe of hyperinflation.

Historical Examples of Hyperinflation Outside of the U.S.

As the following examples illustrate, hyperinflation often accompanies political and social instability, with each exacerbating the other.

• Weimar Germany, 1920s: Inflation rises by 20.9% per day
• Zimbabwe, 2004-2009: Inflation hits 98% a day, with prices doubling every 24 hours
• Venezuela, 2010s: Prices rose 41% in 2013. By 2018, the inflation rate was 65,000%

How to Protect Yourself From Hyperinflation

The U.S. has survived several bouts with dangerously high inflation, but it has never experienced hyperinflation. If it does, history suggests it will be part of a wider economic failure, political collapse and social upheaval. The only way to prepare is to diversify your wealth to include inflation-resistant assets like commodities, real estate and precious metals.

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