Many believe that that the U.S. is set to reach an inflation rate that is 1,000% or higher
Hyperinflation typically referred to as a series of exaggerated, uncontrollable price rises, is not common in advanced countries. It’s because true hyperinflation must achieve a very high threshold, which is an inflation rate of 1,000 percent or more annually according to the majority of economic experts. 1
The U.S. Federal Reserve System (FRS) states that an annual rate of inflation of 2percent is “most compatible in line with Federal Reserve’s mission to ensure the highest level of productivity and for price stability. “2
The rate of inflation of the United States in 2021 was 6.6%. For 2020 the inflation rate was 1.2 percent and 1.9 percent for 2019. The highest the rate at which inflation has been since 2011, which was 3.5 percent.
Inflation and Economic Equilibrium
In the realm of finance, it is said that equilibrium is an ideal state where demand and supply are perfectly balanced. Simply put, the quantity of products available for sale is equal to the amount of people willing to purchase these items. When the economic equilibrium is not in balance (which is usually the majority times) is referred to as disequilibrium. The most likely cause for disequilibrium is inflation..
In the event of disequilibrium caused by inflation, the prices of items and services rise due to the gap between demand and supply. The end result of inflation is a decrease in the value for your dollars. Inflation is the reason that something that costs $1 today may cost $1.25 in a year’s time. In the majority of cases it’s just what it is. 4
Hyperinflation: Affliation gone Amuck
Hyperinflation differs from other inflations. It is inflation on steroids. In the case of hyperinflation, a one dollar today could cost between $10 and $50 over the next period of. 1 According to Anders Aslund of the Peterson Institute for International Economics, hyperinflation is only a possibility under particular circumstances, like the disintegration of a currency after conflicts, when fiscal authorities are unable to control the situation or when populism is prevalent.
The most memorable instances of hyperinflation throughout history occurred in the aftermath of World War I in the Weimar Republic of Germany. Through the effort to pay for war reparations and expand the economy simultaneously the German government created enough money that an enormous gap between the demand and supply was created, which led to an increase of 322% per year, or an average annual increase of over three billion per cent The rate was more than 3 billion percentby the end of November in 1923. 6
The table below shows the effects of annual inflation that is normal (2 percent) in addition to hyperinflation (1,000 percent) on the price of certain items included in the basket of services and goods that are covered through the Consumer Price Index (CPI), used to determine the rate of inflation for the U.S.
|Item/Service||2020 Price||2021 Price Including 2.2% Inflation||2021 Price Including Hyperinflation of 1,000%|
|Cup of coffee||$2.00||$2.04||$22.00|
|Gallon of milk||$3.50||$3.57||$38.50|
|The shirt for men||$60.00||$61.20||$660.00|
|Two-bedroom apartment rent||$2,000.00||$2,040.00||$22,000.00|
Source Writer Calculation
The causes of inflation
Economic experts recognize two main reasons for the rise in inflation: cost-push and demand-pull. Cost-push inflation is when the price of production is increased (e.g. due to rising costs for raw materials or wage increases). This causes an increase in the cost of products and services as manufacturers pass on their price increases onto consumers. Cost-push inflation means that costs are “pushed” up due to increasing production costs.
Demand-pull inflation occurs when supply is insufficient compared to demand. The demand can rise because of a robust economy, a natural catastrophe or an excess of money. In these situations demand exceeds supply, which “pulls” prices up.
The two major causes of hyperinflation is (1) an increase in the quantity of money that is that is not backed through economic expansion, that can lead to an increase in the rate of inflation as well as (2) an inflation that is a result of demand-pull where demand exceeds supply. Both of these causes are related since both are overloading the demand part of the equation of supply and demand.
The growth in the money supply is usually triggered by government intervention like what occurred at the time of Germany at the time of 1923. If the government pumps funds into the market, hyperinflation could be the result. The demand-pull effect of inflation is due to the fact that consumers have more money leading to a desire to pay more for goods and services and this increases the demand.
Hyperinflation is a rare phenomenon.
As you can see, hyperinflations, such as the one in the previous paragraph, can be fiscally destructive to a nation. Fortunately, they’re uncommon. Aslund goes as that she refers to hyperinflation as “an insignificant issue for ordinary money policy. “5
Hyperinflation is a situation that occurs when governments print more money to address the onset of a crisis, like during the Weimar Republic. The problem doesn’t need to be an outbreak of war. It can be caused by a bad economy, illness or natural disasters or even a sense of anxiety that prompts people to accumulate. Of course, this decreases supply, which can increase the demand.
Each of these variables when taken to the extreme, could cause hyperinflation. As Aslund points out however, this rarely results in hyperinflation under normal monetary policy.
Yet, Rumors Remain
In spite of the very high threshold to reach hyperinflation, there are some who believe that’s the direction that we are in the United States is headed. Here are a few examples of recent blog posts on the internet that illustrate various strategies:
“Deficit-to-outlay ratio tops 60%, well above the threshold for hyperinflation of 40 percent. “9 — Albert Sung
“Eventually all major Nation State Empires fall and the people who reside there lose faith in their leaders, and as a result, the funds they distribute. It’s happened throughout Ancient Babylon, in Egypt, China, Rome, numerous leading nations in Europe and will eventually impact in the U.S. when the American citizens decide they prefer to live their lives as free nation rather than slaves to an unpayable national debt, whose interest will eventually be more costly to the budget of the federal government than military spending.” — Joseph Holleman
Are The United States Actually Headed for an Inflationary Crisis?
Certain people might believe so. But most authorities say, “No.”
The economist Asher Rogovy attacks the persistent internet rumor that suggests the U.S. is printing too many dollars and this could lead to hyperinflation.
Rogovy: Rogovy, “In the U.S. the central bank doesn’t pay loans by generating money. Instead it lends money at the rate it has set as well as the private market uses the capital more effectively. The money is then returned and that is the main reason why this policy of monetary regulation doesn’t create hyperinflation.”
The Professor L. Burke Files of Hayek Global College suggests that hyperinflation isn’t likely in stable economies such as those of the U.S., in part because of cost-control elements that are made possible by a global economy. “The interconnectedness worldwide,” Files says, “is the “pressure relief valve’ for the majority of nations. Countries which print a ridiculous amount of currency, such as Zimbabwe, or attempt to manipulate their currency or restrict trade, like Argentina, become the extremes.”
“I do not think inflation will remain at a level as at a low level as Federal Reserve’s inflation forecast of 2%,” states Jim Pendergast, senior vice president of altLINE. “That is to say, I’m not sure we’ll see the types of hyperinflation portrayed in these headlines of apocalyptic articles. There will be mixed results due to a particular sequence of events that linger after COVID.”
In the end, attorney Steven J.J. Weisman Esquire., addresses what is referred to as the “scam” part of some hyperinflation stories on the internet. “Sometimes reports such as this are created in order to entice people to read the articles that are published on websites that pay advertising by the number of clicks they earn,” says Weisman.