Table 12.1 ~ Inflation

Young people today in the advanced world have grown up without experiencing substantial inflation, but one hardly has to reach deep into the history books to find inflation was a scourge of advanced economies, reaching 13% in the United States in 1980 and 23% in Japan in 1974. Even as late as 1992, there were 44 countries with inflation above 40%

And 40% is nothing compared to hyperinflations of 2,000% per year or more. Table 12.1 shows the effects of modern-day hyperinflations on the value of currencies in emerging markets between 1970 and 2001. The Congo, with three bouts of hyperinflation (or near hyperinflation) during this period, and Brazil with two, top of the list. In the case of Congo, for example, the cumulative inflation rate is almost 10 quadrillion (10 thousand trillion) percent (as proxied by exchange rate depreciation against the dollar).

The most famous hyperinflation is the one in post-World War I Germany, which reached 22 billion percent in 1923. There are stories how children would meet their fathers at the factory gate on payday, then race by bicycle to spend the money in town before it became worthless. The twenty-first-century record appears to belong to Zimbabwe, where inflation reached an annual rate of more than 24,000% in 2008 and a far higher rate than that at its peak. (I had an undergraduate student from Zimbabwe at the time who commented that she could not figure out how the government calculated the official price level, as there was nothing to buy in the stores anyway.) Of course, there are still countries with very high inflation even today. The International Monetary Fund is already forecasting inflation in more that 1000% in governance-challenged Venezuela, which may prove optimistic.

All of this carnage was achieved without negative interest rates. Any government that cannot control its appetite for inflation finance is not easily contained once it has the printing press. ~ Page 183 /184