Products increase but wages do not
Hyperinflation is an economic phenomenon that consists of very high inflation . Inflation is called, in turn, a general increase in prices .
An extreme sustained increase
If prices register a sustained increase, therefore, we speak of inflation. If this increase is extremely large, it is more accurate to refer to the existence of hyperinflation.
There is no consensus on when inflation becomes hyperinflation. There are economists who maintain that if the general price index rises by 50% in one month, hyperinflation is already registered, while others consider that hyperinflation is only defined if prices grow by more than 100% in a period of three years .
Beyond the technical detail, high inflation that grows without control and does not tend to balance is usually called hyperinflation. In this process, the currency suffers a significant loss of its real value , thereby reducing the wealth of society.
An example
Suppose a person earns 1000 pesos per month . If the price of a liter of milk is 10 pesos , your salary is enough to buy 100 liters per month . In the event that the price of a liter of milk shoots up to 50 pesos , this individual's salary will only allow him to purchase 20 liters . Through this example you can see, in a simplified way, how hyperinflation destroys purchasing power and impoverishes people.
The seriousness that we can see in this hypothetical case lies in the fact that the citizen continues to earn the same amount of money despite the increase in products, in this case milk, so that his situation becomes alarming because he cannot continue satisfying his needs. basic needs . Unfortunately, this concept is not merely theoretical but has had and will continue to take place in different parts of the world throughout history.
Possible causes
Hyperinflation can have various causes. In its essence, it is due to an exponential and rapid growth in the amount of money in circulation , without this growth being accompanied by an increase in production. Many times this is a consequence of the government issuing banknotes to cover the fiscal deficit , thus generating an imbalance between the demand and supply of money .
With more money in circulation and the same amount of products and services in the economy, prices rise sharply. It is not unusual for hyperinflation to be associated with paper money, precisely because supplying it in larger quantities does not require a complex process, but rather simply "printing more or modifying old banknotes."
The currency is devalued, triggering an emergency situation
How to treat hyperinflation
There are many cases of hyperinflation after which the country once again relied on the so-called strong or hard currency . The latter is characterized by having a free exchange rate and a value that is unlikely to depreciate in the short term. This measure has also been combined with barter if the currency in circulation suffered excessive devaluation, particularly if the store of value was withdrawn hastily.
Hyperinflation is usually combated with drastic procedures , such as the imposition of shock therapy (price and currency controls are suddenly released, government subsidies are withdrawn, and trade is immediately opened) or the alteration of the base of the currency. This last measure can be carried out in different ways, such as resorting to a monetary council so that the central bank only prints the amount of money in foreign currency that it has in reserves.