Just when we think that we have had enough of the relentless Covid-19 pandemic and the restrictions placed upon us limiting what we can and cannot do, there comes a threat lurking on the horizon for the most, if not all: inflation. And, unfortunately, it is already here! In October,
the Harmonized Consumer Price Index (HICP) rose 4.1 percent in the European Union (EU).The Consumer Price Index (CPI) in the U.S. rose by 6.2 percent in October compared with a year ago. And the long list goes on and on. After all, prices are on the rise globally. Take a look at the Bloomberg Commodity Spot Index, which tracks the prices for 23 raw materials. It has reached its highest level since 2011. That surely means one thing: soaring prices of everything from homes to food to toilet paper and diapers and adds to fears regarding inflation or even worse: hyperinflation.
So far this issue may seem dull? Rightly so. Let us first elaborate on what inflation is, and, also, what is hyperinflation. The worst
enemy of mankind? By definition, inflation refers to a general progressive increase in the prices of goods and services in an economy.
It manifests itself as a decline in the purchasing power of money. You might think of it as; you are buying the same amount of a
certain product with more money than you used to. On the other hand, hyperinflation is when the prices of goods and services rise
more than 50 percent per month. At that rate, a loaf of bread could cost one amount in the morning and a higher one in the afternoon.
Intimidating right? Not quite so. Imagine that you somehow could time-travel and wish to see the state of Germany back in 1923.
Grappling with the heavy burden of World War I (1914-1918), swimming in a sea of debt, and somehow having to pay war reparations
to victorious nations like Great Britain and France, Germany found some economic relief in printing money. A seemingly magical trick!
One that Milton Freidman hardly endorsed though. So much money was printed that its value fell below the cost of printing it in the
first place. Prices were skyrocketing. As you were sipping your coffee, the price of it was doubling. Or you are laboring and as soon
as you get your monthly salary, you are rushing to the factory doors only to hand out the full amount to your son who is waiting at the
door so that he could buy an extra bag of flour. After all, you are the one who puts the food on the table. Or you somehow end up in
war-torn Hungary in June 1946. The timing would not be that perfect! At that time, prices were doubling every 15 hours. The worst
case of hyperinflation that even Zimbabwe can not match. In 2008, prices were doubling every 25 hours in Zimbabwe. The shops
were changing price tags a couple of times a day. Whether rising prices are the new normal or not is yet to be seen. Jerome Powell,
US Federal Reserve Chairman, thinks that rising prices are “transitory”. However, Twitter’s Jack Dorsey claims that “Hyperinflation is
going to change everything. It’s happening.” Guess what, we will be hearing a lot about inflation and the fear of potential hyperinflation
in the coming days.
