Why Haven’t We Seen Hyperinflation?

Why Haven’t We Seen Hyperinflation?

Exploring the Factors and Examples That Cause Hyperinflation

Hyperinflation is a term that strikes fear into the hearts of economists and ordinary citizens alike. Historically, we’ve seen examples of hyperinflation, from Germany’s Weimar Republic to Zimbabwe, and the devastation it can bring to an economy and society. After the unprecedented amount of money being printed in response to the COVID-19 pandemic and the recent US government spending, many people wonder why we haven’t seen hyperinflation yet. In this article, we’ll explore the factors contributing to inflation and hyperinflation and examine historical and present examples.

What Factors Into Inflation and Hyperinflation?

To understand why hyperinflation occurs, we must first understand the factors contributing to inflation. There are four main factors: industrial output, employment, the money supply, and the velocity of money.

  • Industrial output refers to how much stuff an economy produces. The more products an economy makes, the more supply there is, which equals lower prices. Conversely, the less stuff an economy grows, the higher the costs. This is the supply side of the costs of goods and services. Shortages and low supply are not the same as inflation; however, this does cause a rise in prices.
  • Employment is another critical factor. Full employment leads to employers fighting over workers, leading to higher wages and prices due to this higher operational cost. This is also a supply-side labor shortage. Too little employment leads employees to compete over jobs, lowering wages and prices.
  • The money supply is perhaps the easiest factor to understand. The more money there is in an economy, the higher the prices will be, as long as the economy is producing the same amount of stuff or less stuff. Higher money in circulation leads to more currency chasing the same or less amount of goods and services.
  • The velocity of money refers to how fast money is exchanging hands. If a bunch of money is printed, but that money is spent on food instead of gas, for example, food will experience inflation, but gas won’t. When the velocity of money increases, more transactions occur, leading to increased demand for goods and services, potentially causing inflation.

Historical Examples of Hyperinflation

Now that we understand the factors contributing to inflation and hyperinflation let’s examine some historical examples:

  • Germany’s Weimar Republic is perhaps the most infamous case of hyperinflation. After World War I, Germany was left with war debts and massive reparations. The government responded by printing more money to buy foreign currency to pay off the debts, leading to skyrocketing inflation. At its peak, a loaf of bread cost 160 marks in 1922 and 200 billion marks just a year later.
  • After World War II, Hungary experienced extreme hyperinflation caused by a combination of factors, including excessive government spending to fund post-war reconstruction, a lack of productive capacity and resources, and printing large amounts of money to finance the war effort. Additionally, trade disruption during the war led to shortages of goods and services, further exacerbating inflationary pressures.

Hungary: August 1945 to July 1946:

Highest monthly inflation rate: 4.19 x 1016%

Equivalent daily inflation rate: 207%

Time required for prices to double: 15 hours

Currency: Pengő[4]

  • In the early 1990s, Yugoslavia experienced a case of hyperinflation, with a monthly inflation rate of 313 million percent and prices doubling every 1.4 days.
  • Zimbabwe experienced hyperinflation from 2007 to 2008, with a monthly inflation rate of 79.6 billion percent and prices doubling every 24.7 hours.

Why Haven’t We Seen Hyperinflation Yet?

The ongoing COVID-19 pandemic has led to an unprecedented amount of money being printed, and many people have been questioning why we haven’t yet seen hyperinflation. The answer to this question is a bit more complicated than simply looking at the amount of printed money.

  • One factor contributing to the lack of hyperinflation is steady industrial output. With less supply available, prices tend to increase. However, the US has seen few supply shortages for most goods and services. With less demand from consumers due to the uncertainty of the future and higher prices, the inflation rate has remained relatively stable.
  • Another factor contributing to the lack of hyperinflation is the fear of a recession and recent layoffs leading to a fear of unemployment. With more people afraid of being out of work, they have curved their spending, not driving prices over the edge from inflation into hyperinflation. While money was printed at an unprecedented rate, fear of unemployment has offset some potential inflationary effects.
  • The velocity of money has also slowed down. People hesitate to spend money when they don’t know if they can keep their jobs or find a new one. This hesitation to spend money has kept inflation in check as less money is exchanging hands.
  • The Federal Reserve’s balance sheet holds $8.3 trillion in assets. This locks that money away from the economy and into assets being held. If these assets were sold at one time, the markets would crash with the influx of supply and lack of liquidity to buy so much at once. If this money were freed up to spend in the economy, it would cause hyperinflation if the currency was used to purchase goods and services, leading to shortages while driving up prices.


While it’s true that we haven’t seen hyperinflation yet despite massive money printing by the Federal Reserve and deficit spending by the US government, it’s important to remember that inflation is a simple phenomenon that depends on one primary factor. The money supply is the only real factor that can lead to inflation. Supply and demand imbalances in the economy are not considered inflationary if they have nothing to do with monetary supply. Only bad monetary policy leads to increased prices due to shortages caused by excessive currency supply in circulation.

Inflation refers to a persistent rise in the prices of goods and services in an economy caused by increased money in circulation, resulting in a decrease in the purchasing power of money. The leading causes of inflation can be categorized into demand-pull, and cost-push, caused by monetary factors, including increased consumer demand as they have more cash. Rising production costs, supply chain disruptions, changes in government policies, and expansionary monetary policies increase the money supply.

Hyperinflation is an extreme form of inflation characterized by rapid and uncontrollable increases in the prices of goods and services in a short amount of time. The term is generally used when the inflation rate rises by more than 50% a month. Its causes include excessive money creation, political instability, war, and the beginning of a monetary and economic collapse. Inflation can rarely turn into hyperinflation unless there is a loss of confidence in the currency that leads to a rapid increase in the velocity of money. Hyperinflation is the end game of a currency as people want to convert it to goods and services as quickly as possible to optimize its depreciating purchasing power.

The danger of hyperinflation begins as central banks or governments resort to printing money to finance large deficits or debt over a considerable period with no fiscal restraint.