Hyperinflation – definition and meaning

Hyperinflation is inflation of at least fifty percent per month. In other words, prices are rising by at 50% or more monthly. We often use the term ‘runaway inflation‘ with a similar meaning. Hyperinflation is ruinously high increases in prices. It occurs when an economy’s monetary system is in near total collapse. The currency of a country suffering from hyperinflation is almost worthless as a medium of exchange.

The term inflation refers to rising prices. The opposite of inflation, i.e., when prices decline, is deflation.

Excessive deficit spending, which governments usually fund by printing more money, is the main cause of run-away inflation. However, some social-economists believe that rather than hyperinflation leading to social breakdown, it is the other way round. In other words, they say that social breakdown causes runaway inflation.

ft.com/lexicon, the Financial Times’ glossary of business terms, says the following regarding the term:

“Very rapid inflation that leads to a complete loss of confidence in the sustainable purchasing power of a country’s currency and possible economic collapse.”

Hyperinflation definition and features
When there is hyperinflation, people suffer. In Venezuela, for example, thousands of people today say they are going for days without eating.

Hyperinflation – wars and depressions

Hyperinflation is typically associated with wars or economic depressions.


When runaway inflation coincides with an economic depression, there is a gigantic jump in the money supply. However, there is no GDP growth accompanying this money supply increase. GDP stands for Gross Domestic Product.

If the money supply soars but GDP does not grow, demand for money gets out of balance. If nobody does anything about the imbalance, prices rise rapidly, and the currency plummets in value


Dramatically-rising prices during a war are typically due to a loss of confidence. Specifically, a loss of confidence in the currency’s ability to maintain its value later on.

Subsequently, sellers seek a risk premium when consumers pay with the currency. In other words, they increase their prices.

Before long, things can get out of control, and prices start rising exponentially, i.e., hyperinflation ensues.

Wikipedia says the following regarding hyperinflation:

“Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money if the (monetary) inflating is not stopped.”

“Either one, or both of these together are the root causes of inflation and hyperinflation.”

Effects of hyperinflation

When prices shoot up and the currency crashes, people’s purchasing power plummets. The value of their savings also declines significantly. This distorts the economy in favor of hoarding.

People substitute their local currency with stable money. In former times, citizens resorted to amassing gold or silver. Today, people seek stable currencies such as the dollar, euro, pound, or Yen.

If runaway inflation is completely out of control, not even government measures such as penalties and fines have any effect. In fact, when people have lost confidence, exchange controls make little difference.

Consequently, the inflating currency becomes heavily undervalued compared to other stable currencies. This means that foreigners can live cheaply in the country with hyperinflation if they pay with a stable currency.

Hyperinflation – examples in history


Rome underwent hyperinflation during the Crisis of the Third Century. This was the result of years of coinage devaluation.

In Austria in 1922, inflation reached 1,426.

Germany in 1923 saw inflation reach a whopping 3.25 x 106 percent per month. In other words, prices doubled every two days.

In 1941, during the German invasion of Greece, Greek prices increased significantly. The reason was mainly psychological. Put simply, people feared shortages and started hoarding goods.

Throughout WWII, Greece experienced several episodes of hyperinflation. During the 12-month period ending November 1944, monthly inflation reached 1010 percent.

In Hungary in 1923, the inflation rate reached 98%.

Poland experienced runaway price rises in 1923 and then again in 1989-1990. On both occasions, the country eventually introduced new currencies.

The Soviet Union experienced hyperinflation from 1917 until 1924, when it joined the gold standard.

Yugoslavia went through a period of severe price rises from 1989 to 1994. In fact, during that period, the country underwent several currency reforms.


The Republic of China experienced runaway inflation from 1948 to 1949. From 1947 to 1948, the highest-denomination banknote rose from 50,000 yuan to 180,000,000 yuan.

North Korea experienced hyperinflation from 2009 to 2011. However, as it is a communist regime without a free press, getting reliable data was impossible.

During WWII, when Japan occupied the Philippines, prices rose dramatically and the currency plummeted in value. People referred to their currency, the peso, as Mickey Mouse money.


Under President Robert Mugabe, Zimbabwe has experienced several years of hyperinflation. In 2006, annual inflation stood at 1,730%. By 2007, it reached 11,000%.

In fact, things got so bad in Zimbabwe that they had to print a one-hundred-trillion dollar bill.


In January 2018, Venezuela’s annual inflation rate stood at 2,616%. The country’s National Assembly said that millions of Venezuelans were suffering from food and medicine shortages.

On January 8th, 2018, Reuters reported:

“The country’s minimum wage went up 40 percent in January but still is worth just over $2 per month on the black market exchange, where the bolivar currency has weakened about 35 percent against the dollar in the last month alone.”

“Hundreds of people mobbed some supermarkets on Saturday after authorities promised price cuts.”

Video – Hyperinflation

This One Minute Economics video explains what hyperinflation is. Runaway inflation has happened in many countries all over the world many times in history.

If the right socio-politico-economic conditions are present, it can and will happen again.