Galloping inflation

Also known as: Hyperinflation

In the German-speaking world, the "galloping inflation" can only be found in the history books in the context of the "German inflation" from 1914 to 1923.

At that time one of the most serious devaluations in the modern history of industrialized nations, this type of inflation is now a rather rare phenomenon in European economies. The last time the Belarusian ruble came under such pressure was in 2011 and 2012.

Definition / explanation

The phrase “galloping inflation” metaphorically describes a disproportionately strong and rapid rise in the general price level. Usually one speaks of this form of currency devaluation with a monthly inflation rate of more than 20 percent.

In addition, the "galloping inflation" is characterized by an uncontrollable and irreversible dynamic of its own. It not infrequently turns into a so-called hyperinflation, the monthly inflation rate of which is more than 50 percent. Often both forms of inflation are equated, as the individual underlying parameters have not yet been scientifically established.

Causes of galloping inflation

The emergence of this extreme form of inflation is almost always associated with major political upheavals, crises or wars. In doing so, the state often encounters the sudden increase in expenditure associated with such events with an increased amount of money being printed.

As a rule, however, the printed money supply exceeds its own reserves at some point, so that the state begins to meet its obligations with uncovered money. This reaches the point of no return, since from this point on there is no longer any possibility of stopping the increasing loss of monetary value through your own reserves.

The authorship for this form of inflation therefore lies without exception with the state.

Consequences of galloping inflation

Dem zusätzlichen Geld stehen im Economic cycle immer weniger Güter und Dienstleistungen gegenüber, was zu einer entsprechenden Preissteigerung, dem kontinuierlichen Schwinden der Kaufkraft und schließlich zum Einbruch der Nachfrage führt. Daran gekoppelt sind außerdem drastische Verluste bei Finanzanlagen und Investitionen, die auf der betroffenen Währung gründen.

Alle Faktoren sorgen dafür, dass das Vertrauen in die jeweilige Währung im erheblichen Maße sinkt. Die Folgen sind gemeinhin eine Kapitalflucht in fremde currency und eine Flucht in inflationssichere Sachwerte. Daneben ersetzt der Tauschhandel häufig die Währung.

To escape this permanent downward spiral, the only sensible and typically practiced economic solution is currency reform.

Summary

  • extreme form of inflation with monthly inflation of more than 20 percent
  • often resulting in hyperinflation with an inflation rate of more than 50 percent
  • can be traced back to increased government money requirements in the context of political crises and wars
  • uncontrollable and irreversible form of inflation
  • Currency reform as an economic solution
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