Hyperinflation

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DEFINITION of 'Hyperinflation'

Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless.

 

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BREAKING DOWN 'Hyperinflation'

When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value.

When associated with wars, hyperinflation often occurs when there is a loss of confidence in a currency's ability to maintain its value in the aftermath. Because of this, sellers demand a risk premium to accept the currency, and they do this by raising their prices.

One of the most famous examples of hyperinflation occurred in Germany between January 1922 and November 1923. By some estimates, the average price level increased by a factor of 20 billion, doubling every 28 hours.

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RELATED FAQS
  1. What are the most common signs of impending hyperinflation?

    Hyperinflation is an extreme inflation level that causes prices to rise rapidly and citizens to abandon a currency due to ... Read Full Answer >>
  2. What are some historic examples of hyperinflation?

    Hyperinflation is an extreme case of monetary devaluation that is so rapid and out of control that the normal concepts of ... Read Full Answer >>
  3. What are the key differences between stagflation and hyperinflation?

    Stagflation occurs when a period of high inflation coincides with a stagnant economy and elevated unemployment. Hyperinflation ... Read Full Answer >>
  4. Should investors worry about the budget deficit?

    Investors should be very concerned about the U.S. federal budget deficit, but primarily so in terms of how it relates to ... Read Full Answer >>
  5. How can value investors benefit from investing in the metals and mining sector?

    Precious metals have an inverse relationship with stocks and currencies. They are usually unaffected by inflation, stocks ... Read Full Answer >>
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