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The Shocking Truth Behind Hyperinflation: Will It Happen To You?

Darren January 26, 2023

It feels like the world is lurching from one economic crisis to the next. Global problems have created intense economic turmoil and made life more challenging for ordinary people. Every day, costs are rising so rapidly that many economic experts fear we’re facing hyperinflation.

Today we’ll look at the causes of hyperinflation and whether or not that’s truly what people are experiencing today. We’ll also analyze some of history’s most notorious examples of hyperinflation. Meanwhile, we’ll discuss the best ways to live with hyperinflation and (hopefully) how it will finally end.

What Is Hyperinflation At Its Core?

First, it’s important to understand what hyperinflation truly is. Overall, it’s a succession of short, out-of-control price hikes where inflation rises above 50%. These can be dramatic and lead to a seriously devalued currency. Everybody has seen what happened in places like Venezuela and Zimbabwe where people carried bags of cash to buy bread.

Often it’s not worth using their devalued currency so they’ll use a substitute. That’s why several African countries and nations like Cambodia accept the U.S. dollar too. Hyperinflation is rare but the rapid rises in recent months make people fear that it is on the horizon (via Forbes).

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Weimar Germany

History buffs know that Weimar Germany was one of the most notorious examples of hyperinflation. The pre-World War II state suffered because of reparations as part of the Treaty of Versailles. They spent all of their gold to pay their war debts and defaulted on more repayments (via History).

France and Belgium occupied the industrial Ruhr Valley and tried to force German workers to continue production. But they refused and the government printed more money to pay them. This was a complete disaster and caused catastrophic hyperinflation. It was also one of the major reasons behind the worst war in human history.

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Russia-Ukraine War

Many people wonder why the world is entering a period of economic turmoil. Russia’s invasion of Ukraine is a primary reason why there are so many problems. Ukraine is a massive grain producer and there are now shortages of it across the planet. It affects bread production and may cause a food crisis.

Meanwhile, Russia controls many gas pipelines and is using this as leverage against Europe. This caused energy prices to spiral out of control. Now people are spending a fortune on alternatives like electrical heating and oil. It may not be true hyperinflation yet, but it could be heading in that direction (via The Guardian).

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Adjust Your Budget

One of the best and most obvious ways to prepare for a period of hyperinflation is to adjust your budget. It’s time to start storing essentials like dried foods and medical supplies. Nobody wants to be in a situation where they can’t pursue their hobbies or socialize on the weekend. But it may be necessary to prioritize and think about what’s the best thing to prepare for.

There are some easy ways to cut costs. Lower the temperature in your home and take shorter showers. Buy unbranded products from grocery stores instead of more expensive options. Maybe take public transport instead of driving a car every day if it’s possible. Hopefully, these will add up to help to mitigate the effects of hyperinflation (via Time).

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Loss Of Confidence In The Economy

One of the main reasons why hyperinflation occurs is because of public loss of confidence in the economy. Public unrest may occur and the government’s next steps become crucial. If they blink and begin to print more money or make more poor economic concessions, it can cause irrevocable damage.

It’s also important for governments to get ahead of the problem and recognize the threat they face. Food stamps may be a more sustainable response than changing their fundamental economic structures. Unfortunately, this is out of ordinary people’s hands but it’s good to try and understand it (via USDA).

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Simply High Inflation vs. Hyperinflation

People throw around the phrase ‘hyperinflation’ like a child skipping stones these days. But the reality is that hyperinflation is a very rare occurrence with only a few 20th-century examples. Most of the time we actually experience high inflation instead of the more serious hyperinflation, but confuse the two with one another.

High inflation isn’t something that anybody wants to deal with but it’s less of an existential threat. This is when basic costs rise at erratic rates because of affected supply chains. However, a government’s mishandling of the situation may cause hyperinflation if they’re not careful about it (via The Balance Money).

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Pressure Relief Valve

The reality is that hyperinflation is very rare when countries play by global economic rules. We live in a very interconnected world where most nations maintain trade links with each other. This means that they act as pressure relief valves when things are going wrong.

Sometimes nations take a rogue approach and this backfires. Argentina infamously defaulted on loan repayments and this crushed their economy. Meanwhile, we’ll talk more about the likes of Zimbabwe and Venezuela. Countries mustn’t try to go on their own because it never ends well in this globalized world (via Hayek College).

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Higher Cost Of Borrowing

A higher cost of borrowing is one of the biggest problems for ordinary people during a period of inflation. This is particularly serious for prospective house buyers because they face staggering costs. The fee and the interest rates will be greater than during economically stable times.

This makes fixed loans less attractive because it’s difficult or impossible to renegotiate them. Governments don’t want people to spend money during times of high inflation so they’ll put obstacles in their way. It may be time to leap before the economy reaches a tipping point (via Bank Rate).

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Semiconductor Chips

The tech industry is in trouble across the world because of a shortage of semiconductor chips and disrupted supply chains. These are in every device from cell phones to laptops and play a key role in major economies. Ukraine is one of the planet’s biggest producers of krypton, a gas crucial for the chips.

Meanwhile, China’s strict lockdown policies also caused problems for phone manufacturers. This caused companies like Apple to delay the release of new products. It’s also influencing inflation across the world and driving up costs for many industries. This shows how connected the world is and how it’s not always a good thing (via CNBC).

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How Long Does Hyperinflation Last?

One of the first things people want to know about hyperinflation is how long it lasts. This is only natural because they want it to end as quickly as possible. The good news is that the longest period of inflation in U.S. history was for about a decade through the 1970s and ’80s (via Forbes).

Sometimes it only lasts for a couple of months as we saw in 2008 when it went from July to August. There isn’t a rule about how long it will continue because it depends on many factors. Geopolitics, global conflicts, and government responses will all affect the length of hyperinflation.

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Solar Power

These days people are trying to find ways to reduce their daily costs. Solar energy is an excellent way to deal with electricity inflation levels. It doesn’t take a lot of solar power to heat water for a shower. There’s no better way to prepare for a period of hyperinflation than produce homemade energy.

They’re not cheap but sometimes local governments provide grants. Many people want to be self-sufficient in times of crisis so that’s why it’s good to grow vegetables and recycle. These small steps can make a big difference when the economy goes crazy (via Green Match).

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Careful Planning

Another useful hack for dealing with times of hyperinflation is to plan carefully. This may seem obvious but we can change many of our habits. We may choose one restaurant because it’s cheaper but it’s also further away. This means we’re spending more on gas so it may cost more money than the fancier option.

Meanwhile, it’s possible to cut costs in our daily life. Buy chicken instead of beef because it’s much cheaper and healthier as well. Avoid spending excessive amounts on branded laundry detergents. The reality is that many grocery stores use the same products but sell them for a cheaper price (via Forbes).

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40-Year High

Incredibly, inflation reached a 40-year high in 2022. The U.S. typically prefers a gradual rise of just two percent per year. However, it reached a staggering 9.1% because of a combination of global problems. First, there was the global health crisis. Then the war in Ukraine began and everything became messy after this.

This put immense stress on regular consumers because they struggled to afford necessities. There were fears that we were entering a period of hyperinflation. But gas prices have dropped since the days of over six dollars per gallon in California. Hopefully, they continue to stabilize further (via Politico).

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Oil Prices Rising

Strained relations between the West and Russia resulted in higher oil prices since 2022. This also caused an increasingly-limited supply and gave Middle Eastern countries the power to elevate prices. California residents paid over six dollars per gallon in some parts of the Golden State.

This hyperinflation terrified ordinary citizens because they thought that the supply would drive up. Some gas stations closed because they were operating at a loss. In the end, prices dropped as the supply chain stabilized. But it was a traumatic period for many people (via BBC).

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Global Health Crisis

The global health crisis was one of the main reasons why world economies stagnated. Many industries stalled because they weren’t able to maintain production. Tertiary businesses also had problems because there wasn’t much traffic on the streets. This meant that many retail stores and restaurants closed their doors permanently.

Ordinary workers experienced furloughs and struggled to make a living. The world is only recovering from this chaotic period and this affected inflation. Meanwhile, several Asian countries had stricter lockdowns than the Western world. These manufacturing hubs drove up demand because of a lack of supply (via Nikkei).

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China’s Closed Borders

Everyone owns something (and probably many things) with the label ‘Made in China’ on it. The Middle Kingdom is the biggest manufacturing hub in the world without any serious competition. However, they also had a harsh response to the pandemic that drove up a hyperinflation. They closed their borders and even stopped issuing passports to their citizens.

Meanwhile, Apple and other big companies experienced production delays because of supply chain disruptions. Workers suffered forced lockdowns every week and this damaged the credibility of many businesses. It reached a stage where many companies considered moving to other nations like Vietnam and Indonesia (via Rest of World).

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Real Estate

Real estate owners face a difficult conundrum during times of hyperinflation. Firstly, it drives up the prices of houses and means that many prospective buyers can’t afford properties. In theory, this is good for the seller because they earn more money if someone bids for it (via Geek Wire).

The problem is that if nobody can afford to buy the house it becomes an expensive white elephant. It may be better to keep it as a form of passive income by renting it. There are still taxes to resolve and maintenance costs but properties are usually safe assets for any portfolio.

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Diversify Incomes

Economic turbulence isn’t a fun time for anybody but there are some ways to ease the stress. It’s wise to try and diversify income streams when possible. This means that if someone loses their main job they won’t lose all of their income. They might not earn a lot of money from their secondary streams but at least it’s something.

Many people sell homemade products on sites like Etsy. Others create YouTube videos and podcasts that generate some cash. Anybody who owns a house should consider renting it out because it’s a great source of passive income. It’s all about using your imagination and trying to make life easier (via Zen Business).

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Gas Prices Dropping

Drivers can breathe a sigh of relief because gasoline prices are cheaper than they were during the wild times in 2022. Soaring costs saw prices in California reach six dollars per gallon. It’s an outrageous amount of money that meant people had to limit their time on the roads. But this had many knock-on effects (via Fox Business).

It affected different businesses because the inflated gas prices meant they paid higher transport costs. This forced many other industries to increase their prices to make up the difference. Suddenly, the world was experiencing a period that bordered on hyperinflation. Luckily, this is stabilizing and prices are dropping slowly.

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Avoid Taking On More Debt

It’s crucial to avoid more debt during an inflation crisis. Sometimes it’s unavoidable but there are steps we can take to mitigate future problems. Credit cards are very useful when we use them properly. But don’t go overboard with them during a period of hyperinflation.

Continue to pay off mortgages and credit lines because this will avoid further financial stress. Yes, it’s important to pay the bills and ensure there is food on the table. But after this concentrate on these because they’ll drown people if they don’t pay attention (via Time).

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Precious Metals

People are constantly looking for safe investments and ways to diversify their income. That’s not easy to find in the modern world but there’s one sector that remains safe. Precious metals are safer than most other investments because they don’t lose their intrinsic value (via Offshore Circle).

They may fluctuate in value slightly but they rarely plummet in value. This means that they’re a great long-term bet to make more money. Weimar Germany gave away its gold reserve to ease its war debts with catastrophic consequences. That’s why governments don’t want to mess around with these assets.

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A.I. Threat

Tech billionaires continue to develop AI and are constantly trying to get it to do new things. On the one hand, this is fascinating because it shows how quickly technology is developing. But sometimes the question begs whether or not they should be doing this during a time of hyperinflation (via Abnormal Security).

The likes of Chat GPT and driverless trucks are placing stress on many industries. Just because there are AI-driven programs that could potentially replace human work, doesn’t mean we should. It also increases the likelihood of social unrest during a period of hyperinflation. People will lose jobs and have nothing to do because technology is replacing them.

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Invest Early

It’s always wise to invest early rather than waiting to accumulate more capital. Often, it’s too late to make the most of an investment by taking time to see what happens. The most successful investors invest early and often because they know what they’re doing (via Axis Bank).

Another issue during periods of hyperinflation is that the value of money decreases every day. Eventually, it may become worthless and prevent prospective spenders from using their money. Investments in gold or platinum will hold their value, even through a period of intense turmoil.

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Venezuela

This South American has the world’s largest oil reserves but they over-relied on the fossil fuel. Suddenly, there was less demand for their oil and this drove them into an economic crisis. Their leader, Nicholas Maduro decided to print more money but this was a mistake because it devalued the currency (via The Conversation).

As things became worse, Venezuela printed even more money. Ordinary citizens turned to the U.S. dollar and further devalued the Bolivar until it was worthless. Now the country is a basket case and a warning about the dangers of hyperinflation. It’s a disturbing case study during the cost of living crisis in the developed world.

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Dry and Canned Foods

Experts predict that we are about to enter a period of hyperinflation. But the reality is that this is very difficult for ordinary people to guess. That’s why it’s good to take preemptive steps to ensure it doesn’t affect our lives too seriously. Always keep a supply of dry and canned foods at home in case things go wrong.

This is also useful during natural disasters like earthquakes and snowstorms. It may seem like a survivalist tip but it’s not a bad idea to be able to feed a family. Growing fresh vegetables is also great if people want to put in the time and have the space. Treat this the same way as an emergency fund (via Real Simple).

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Targeted Interest Rate

Internet conspiracy theorists claim that the U.S. is heading toward hyperinflation because it keeps printing money. However, this is a manipulation of the facts. The U.S. is not paying debts by printing more money or using it to pay workers like in they did in Weimar Germany (via The Balance Money).

Instead, they’re lending the money to different places at a targeted interest rate. This means that they make money from giving the money away. It’s far more sustainable than many people realize. Printing money isn’t the worst practice in the world as long as there is a clear plan behind it.

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Crypto Crash

The crypto crash is another symptom of recent hyperinflation. Crypto is one of the riskiest sectors for new investors and it’s highly inadvisable to touch it without any experience. The recent downfall of FTX shows that nothing can be taken for granted when it comes to crypto.

Many people poured their savings into cryptocurrencies because they believed in the snake-oil salesmen online. Now their investments aren’t worth anything and there is nobody to blame but themselves. Avoid touching dangerous revenue streams when hyperinflation is on the horizon (via USA Today).

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Keep Investing

It may seem counterintuitive but it’s smart to keep investing ahead of a time of economic turbulence. This will help people to diversify their income streams and ensure that they will keep afloat. It’s best to create a wide-ranging portfolio so that the downfall of a single industry won’t hurt too badly.

Don’t stop putting money into retirement funds because the future will always be there. Sometimes it’s scary to watch this cash disappear every month but it will be worth it in the end. There are times when it’s not possible to make these payments but that’s life (via Fool.com).

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Preemptive Health Care

One of the smartest things to do before a period of hyperinflation is to focus on preemptive health care. Don’t neglect doctor and dentist check-ups because they can save a lot of money in the long term. Meanwhile, try to continue paying for health insurance so that massive bills don’t arise from emergency treatments.

Contraception is another key form of preemptive health care. We love our children but a recession or period of hyperinflation isn’t the best time to have more kids. Family planning is essential to ensure that nobody finds themselves in a desperate situation (via Legal Zoom).

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House Prices Soar

It’s a terrible idea to buy a property during periods of hyperinflation. Usually, property prices rise rapidly during these times and this can price people out of the market. First-time buyers often can’t afford a mortgage for an overpriced house. Even if they can they may not want to deal with bloated repayments.

This often leaves potential homeowners in a precarious position. They won’t want to watch their savings drain away by renting. Perhaps they’ll need to move back in with their parents for a short time. At the very least ensure that it’s possible to renegotiate a mortgage in the future (via The Balance).

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Security

Security becomes a serious issue during periods of hyperinflation. No money drives people to acts of serious desperation. Neighbors may turn on each other if they run out of cash and can’t buy essentials. If they know that somebody has stockpiled food they may raid their house.

This may seem over-the-top but it happened in every country that suffered hyperinflation. Home security is always a good investment because it can help to keep families safe. Extra locking mechanisms, CCTV systems, or even a firearm are steps that may make a house safer (via The Survival Mom).

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Stores Of Value

Preparation is key when the signs point toward hyperinflation. People like to buy stores of value because they will help them to cope with a period of upheaval. Also, these items will retain their value during the crisis. It’s far cheaper to buy them before everybody wants them too.

Stores of value include generators that produce electricity. They could also be non-perishables like canned food, candles, and toilet paper. These are all things that we take for granted day to day. But it’s only in a time of desperate need that we realize how much we need them (via Wall Street Oasis).

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Adapting Supply Chains

One of the most depressing aspects of this guide to contemporary hyperinflation is that it’s out of ordinary people’s control. They can’t stop a government from selling its gold reserve or printing lots of money. However, they can rest assured that supply chains adapt, even during the biggest crises.

Russia and Turkey agreed to allow the export of grain through the Black Sea in 2022. This is an interconnected world where even rogue countries must play the same game. Supply chains find a way to adapt and this brings down the cost of living after it escalates (via RPI).

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Slowing Pandemic

The world is slowly returning to normal after the shock of the global health crisis. This was the worst pandemic since the Spanish Flu in the early 20th century. Suddenly, the world ground to a halt overnight, and borders closed. We took freedom for granted but it disappeared in an instant.

Luckily, things are stabilizing and the crisis is abating. The manufacturing and tourism sectors endured a lot of problems during this period but now they’re rebounding. This is great for ordinary people who are dealing with times of high inflation. Hopefully, things will never be that bad again (via BMZ).

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Emergency Fund

The most important tip for everybody on this list is to keep pouring money into an emergency fund. Even if it’s just a few dollars each month, it will still help. In 2023, experts recommended that people have access to six months’ worth of expenses because of inflation (via The American Dream).

We understand that this may be beyond the capacity of many hardworking people. They have bills to pay and must also put food on the table. Meanwhile, they may want to put money into a pension plan or their children’s college fund. But an emergency fund will keep the lights on at the darkest time.

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Zimbabwe

The dysfunctional Zimbabwean government caused some of the worst hyperinflations ever. Their corrupt practices and ridiculous economic policies destroyed their currency. To put this into perspective they changed their $20 bill into a $200,000,000 bill. Yes, they printed these despite their lack of value.

Zimbabwe continued printing money to fund its war in the Democratic Republic of Congo. But food prices went up and this forced them to import more at a high loss. Meanwhile, a foreign currency black market became active and finally, Zimbabwe accepted the U.S. dollar as legal tender (via Positive Money).

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When Will Inflation Ease?

The main question people want to know is when will inflation slow down? This is fair because nobody enjoys paying a premium for our daily necessities. However, there isn’t a clear answer and experts have split opinions about this. Geopolitics and global affairs will influence how quickly the world rebounds from inflation.

Most economists predict that the Federal Reserve will achieve its two percent interest target by 2024. This bodes well for the future but many things can change overnight. Meanwhile, the impending slowdown will probably create a recession. This is bad news for ordinary people whose jobs will be at risk (via Nerd Wallet).

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Supply Shock

Supply shocks are one of the primary drivers behind inflation. In short, they are the sudden reduction of accessibility to a product or natural asset. The Russian invasion of Ukraine is a good example because this affected the availability of gas, oil, and flour for different reasons (via Financial Times).

Venezuela experienced a supply shock when there was no longer a serious demand for its vast reserves of oil. Easing a supply shock is a massive responsibility for a government. It could be a potential tipping point for a country’s future. They’re rare in the developed world but never say never.

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Printing More Money

The overwhelming majority of economists agree that printing more money is one of the worst reactions to hyperinflation. This is because it devalues a currency and can send things spiraling out of control. In the end, ordinary people become poverty billionaires because they hold vast quantities of worthless money.

Society degenerates because there are shortages of food and medical supplies. This can create refugee crises and violent unrest. Many regular Americans might think that the government should print more cash and hand it out. But it’s not that simple and would be the worst thing to do (via History).

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Are We At Risk?

The short and tentative answer to this question is no, we’re not at risk of hyperinflation. That’s because the interconnected global economy makes it too difficult for countries to experience this. However, there’s always the possibility that a nation will go rogue and repeat the mistakes of the past (via U.S. News).

Preparation is key because nobody knows what’s around the corner. The U.S.’s main problem is that it has massive debt and owes hundreds of billions of dollars. If they print more money to pay this debt then there could be a serious problem. Nonetheless, a record high of eight percent is nowhere near the 50% hyperinflation threshold – for now.

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