Hyperinflation at 100,000 per cent, and eggs for bonus!

Venezuela, of course. Once the richest economy in South America, with an abundance of oil resources, it is today reeling under the effect of an economic collapse, hyperinflation, and crime.

In a 1956 paper titled ‘The Monetary Dynamics of Hyperinflation’, economist Phillip Cagan wrote that to qualify as hyperinflation, a country’s inflation rate had to be at least 50 per cent per month.

Later, economists Steve Hanke and Nicholas Krus at The Johns Hopkins University — who compiled the Hanke-Krus World Hyperinflation Table in 2012, listing 56 countries with a history of hyperinflation — added two criteria.

The 50 per cent inflation rate had to persist for at least 30 consecutive days, and the inflation episode had to be fully documented and that inflation estimates had to be replicable.

In November/December 2016, Venezuela became the 57th country to make it to this rogues’ gallery. Its inflation rate was 219.7 per cent in November 2016; it has risen steadily since — to 1,906 per cent a year in September 2017, and further to 100,000 per cent last month. And the IMF reckons that worse is to come.

Try one million per cent inflation: that is the IMF’s estimate for end-2018.

You may well ask. Hanke and Krus came up with a way to visualise such large numbers. They introduced two metrics to help put hyperinflation into perspective: the equivalent daily inflation rate and the time required for prices to double.

A sort of living hell, for sure. In Venezuela, according to anecdotal accounts, restaurant owners don’t have menus with printed prices, which change virtually by the hour; supermarkets too have removed the display of prices from shelves.

Cash has no value in periods of such hyperinflation, and so a barter economy of sorts has sprung up. For instance, an enterprising security agency has begun offering 144 eggs a month as “motivational bonus” on top of a salary of just $10 a month; it has proved attractive, given the food scarcity and soaring prices. Security guards are in demand because crime rates have shot up under hyperinflation, which impoverishes people: Venezuela today has one of the world’s highest murder rates.

Not at all. In July 1946, Hungary’s monthly inflation peaked at 41.9 quadrillion per cent: that’s 42 followed by 15 zeroes; or an equivalent daily inflation rate of 207 per cent, which meant prices doubled every 15 hours. In November 2008, Zimbabwe’s monthly inflation was 79.6 billion per cent; that’s 80 followed by nine zeroes; prices doubled every 24.7 hours. Germany in 1923 had a monthly inflation rate of 29,500 per cent: that’s a daily inflation rate of 20.9 per cent. Of course, German hyperinflation also gave rise to Nazism, with catastrophic geo-military consequences.

Mercifully not. Hyperinflation typically occurs under extreme conditions: war, political mismanagement, and the transition from a command to a market-based economy. As Hanke noted in a September 2017 paper, “it is a world of economic chaos, wrenching poverty, and death.” Its purveyors, he wrote, “should be incarcerated, and the keys should be thrown away.”

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