- Certain figures in this article use scientific notationScientific notationScientific notation is a way of writing numbers that are too large or too small to be conveniently written in standard decimal notation. Scientific notation has a number of useful properties and is commonly used in calculators and by scientists, mathematicians, doctors, and engineers.In scientific...
In economics, hyperinflation is inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases rapidly as the functional or internal currency, as opposed to a foreign currency, loses its real value very quickly, normally at an accelerating rate.
Definitions used vary from one provided by the International Accounting Standards Board
International Accounting Standards Board
The International Accounting Standards Board is an independent, privately funded accounting standard-setter based in London, England.The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee...
, which describes it as "a cumulative inflation rate over three years approaching 100% (26% per annum compounded for three years in a row)", to Cagan's (1956) "inflation exceeding 50% a month." As a rule of thumb, normal monthly and annual low inflation and deflation are reported per month, while under hyperinflation the general price level could rise by 5 or 10% or even much more every day.
A vicious circle is created in which more and more inflation is created with each iteration of the ever increasing money printing cycle.
Hyperinflation becomes visible when there is an unchecked increase in the money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
(see hyperinflation in Zimbabwe
Hyperinflation in Zimbabwe
Hyperinflation in Zimbabwe began shortly after destruction of productive capacity in Zimbabwe's civil war and confiscation of white-owned farmland. Food output capacity fell 45%, manufacturing output 29% in 2005, 26% in 2006 and 28% in 2007, and unemployment rose to 80%...
) usually accompanied by a widespread unwillingness on the part of the local population to hold the hyperinflationary money for more than the time needed to trade it for something non-monetary to avoid further loss of real value.