Imagine a country where supermarket employees have to raise their prices several times a day, maybe by placing one price sticker on top of the old one. Describing Brazilian inflation during the early 1990s, one woman said she raced to food markets to see if she could beat the price rise. As told in this podcast, Brazil’s inflation rate was high.
However, it was nothing like Zimbabwe’s.
One economist has estimated that, by the time Zimbabwe replaced its own dollar with foreign currency during 2009, its annual inflation rate was close to 89.7 sextillion percent. So, you might think that the Zimbabwe dollar is worthless. Not quite. On eBay, a $100 trillion Zimbabwe dollar bill recently sold for close to $5 and currency collectors, looking for more, could push price up further.
Actually, Zimbabwe occupies second place for a world hyperinflation record. Hungary (July 1946) is #1 and Yugoslavia (January 1994) is #3.
The Economic Lesson
There are two basic ways that textbooks explain inflation:
1) Let’s assume that changes in supply relate to land, labor and capital. So, if a central bank increases the money supply, it will not affect supply. More money? Constant supply? The result is inflation.
2) Too many dollars chasing too few goods creates “demand pull” inflation; when the cost of land, labor, and/or capital rises, we have “cost push” inflation; inflation also can result when one item that is central to an economy, such as oil, becomes more expensive.
An Economic Question: Imagine living through a hyperinflation as a consumer, as a worker, or as a business owner. How would you explain the different challenges?