Hyperinflation is very high and rapidly growing inflation – a rate of more than 50% per month. It spurs out-of-control price increases and usually occurs during periods of economic turmoil, like a depression.
Historically, hyperinflation was caused by a significant increase in money supply that was unjustified based on economic growth and/or demand-pull inflation, when demand far exceeds supply, sending prices higher.
The two are usually jointly to blame for triggering hyperinflation because while central banks should tighten money supply when inflation is quite high, some have no option other than to continue printing money in order to keep up with financial obligations.
Too much money chasing too few goods causes prices to rise and once inflation takes hold, consumers start to fear persistent inflation. This can lead to hoarding behaviour, when consumers buy more of virtually anything they can get their hands on, in order to avoid having to pay more later.
Additional demand further disrupts the imbalance and can lead to hyperinflation. Once consumers start stockpiling it greatly exacerbates the situation, which can push an economy from high inflation to hyperinflation.
The situation becomes increasingly critical if people hoard food because once the necessities of life become scarce and exceedingly expensive, the economy is on the brink of collapse.
People’s savings become worthless as their money loses its value. Eventually, banks go bankrupt as their outstanding loans diminish in value and there’s no money to circulate when people stop making deposits.
Germany, Venezuela and Zimbabwe have experienced hyperinflation. In 2022, out-of-control inflation in Sri Lanka and Ethiopia had those countries on the cusp of being the next to earn this dubious distinction.
The only time the U.S. experienced hyperinflation was during the Civil War, when the Confederate government printed money to pay for the war.