Hyperinflation: Its Causes and Effects With Examples

Could You Survive Hyperinflation?

By Kimberly Amadeo  Updated on July 20, 2022

Hyperinflation occurs when the prices of goods and services rise more than 50% per month. At that rate, a loaf of bread could cost one amount in the morning and a higher one in the afternoon.

Hyperinflation is very rare. In 2022, the U.S. has experienced heightened inflation; as of May 2022, consumer prices have risen around 8% year-over-year.1 Although this uptick is alarming, and indeed has had serious consequences for many Americans, it is a long way off from hyperinflation.

The severity of cost increases distinguishes it from the other types of inflation. The next worst, known as galloping inflation, sends prices up 10% or more per year.

Causes of Hyperinflation

Hyperinflation has two main causes: an increase in the money supply and demand-pull inflation. The former happens when a country's government begins printing money to pay for its spending. As it increases the money supply, prices rise as in regular inflation.

The other cause, demand-pull inflation, occurs when a surge in demand outstrips supply, sending prices higher. This can happen due to increased consumer spending due to a growing economy, a sudden rise in exports, or more government spending.2

The two often go hand-in-hand. Instead of tightening the money supply to stop inflation, the government or central bank might continue to print more money. With too much currency sloshing around, prices skyrocket. Once consumers realize what is happening, they expect continued inflation. They buy more now to avoid paying a higher price later. That excessive demand aggravates inflation. It's even worse if consumers stockpile goods and create shortages.

Key Takeaways

When prices soar over 50% in one month, the economy is experiencing hyperinflation.

Hyperinflation can be caused by a government that prints more money than its nation’s GDP can support.

Hyperinflation tends to occur during a period of economic turmoil or depression.

Demand-pull inflation can also cause hyperinflation.

Some examples of hyperinflation include Germany, Venezuela, Zimbabwe, and the Confederacy during the Civil War.

Effects of Hyperinflation

When hyperinflation is in effect, consumer behavior adjusts. To keep from paying more for goods tomorrow, people begin hoarding today. That stockpiling creates shortages. Hoarding can start with durable goods, such as automobiles and washing machines. If hyperinflation continues, people hoard perishable goods, like bread and milk. These daily supplies become scarce, and more expensive, and the economy falls apart.

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