A modern person does not need to explain what inflation is. This is a real disaster for third world countries when, due to the unstable economy in the state, your money becomes worthless. The highest inflation in the world was in Zimbabwe in 2009. It amounted to 231 million% per year, and unofficially - 6.5 quinquatrigintillion. This country has won the title of “Bottom Standard” in the economy, but I think this has not made it any easier for its citizens. For comparison, the inflation rate in Russia is about 9% per year.
The head of Zimbabwe, Robert Mugabe (the longest-serving president in the world), supposedly, having come to power as a result of a military coup in 1999, did not come up with anything more clever than to begin the forced expropriation of land from the white population (at that time they controlled 70 % of all lands). Persecution, lack of opposition and a monstrous dictatorship led to the fact that Europeans began to leave the country, abandoning established businesses.
Today, only 1% of the total population remains white, and the redistribution of land has led to the decline of agriculture and an incredible rise in prices. In almost a few years, industrial production decreased by 3 times, and unemployment rose to 80%. In a short time, from the most developed country on the African continent, Zimbabwe turned into the poorest importer of all necessary food products. And for many years, only humanitarian aid remained the main supplier of food for people.
All this time, the government continued to print money that was not backed by goods, which led to an even greater decline. From December 2007 to 2009, the denomination of banknotes increased from thousands to millions, billions and billions of bills. You can understand the degree of the highest inflation in the world using this example. If a roll of toilet paper worth 100 thousand Zimbabwean dollars is divided into portions, or the same bill is exchanged for the smallest 5-dollar bills, then it turns out that using banknotes for other purposes will be 278 times cheaper.
In 2009, a denomination was carried out and 10 zeros were removed, but this did not stop the decline. And only when the ban on the use of a global stable currency was lifted and the American dollar became the leader of the country, the situation gradually began to improve. In 2015, the inflation situation in Zimbabwe was much better than in Ukraine. And in 2014 there was even some GDP growth.
World inflation
What will inflation be like in the next ten years? This question is currently the most unclear for the global economic community.
While investors navigate using a “compass,” the government uses a special “calendar.”
For now, we are in the “Spring” zone – in the stage of growing global savings and growing public debt.
How the ratio of accumulated deposits in the world to global GDP has grown over the past 20 years is shown in the following chart.
We see that over the past two decades, monetary savings have increased from 60% of GDP to 100%. Sooner or later, the trend in savings growth will reverse.
At this point, consumer demand will increase sharply. If nothing is done, “Autumn” will come. There will be strong inflation. “We will reap what we sow.” They printed money and got a sharp rise in prices.
If everything is done on time - carefully withdrawing “extra” money from the economy at the time of increasing demand, then we will find ourselves in the zone of happiness - “Summer”. Government debt will fall against the backdrop of slight inflation and a decent level of profit from companies. “Spring has passed, summer has come, thanks to the party for this!”
But if you start tightening the screws too early, sharply reducing the state deficit without waiting for an increase in consumer spending, then “Winter” will begin - not only snow will fall, but also company profits. We'll get depressed.
In general, governments face a difficult task. “Russia has excellent agriculture – but there are four very serious problems. These are spring, summer, autumn and winter."
To remove money from the economy, the state has two main tools: tax increase And reduction in government spending.
Increasing taxes is dangerous - you can lose competitiveness.
Nowadays there is a war between two worlds. On the one hand, these are transnational corporations such as Microsoft, Procter & Gamble, General Electric or IBM, and on the other, governments.
The state represents the interests of socially disadvantaged sections of society, which make up the majority of voters. It is natural for the government to want to impose high taxes on corporations and their highly paid employees, and distribute the money to the poor. But if corporations face high taxes, they immediately find refuge in other, more pliable countries.
And this is very unpleasant, because today, unlike 50 years ago, all scientific thought is concentrated in large corporations. State scientific institutes do little serious research. Therefore, if there are no international companies in the country, then there are no scientific developments. Just look at modern Russia. We complain that science is dead here. How many international companies conduct scientific research in our country? Zero. Hence the result.
It turns out that a country must either levy low taxes, increasing the national debt, or have high taxes, while ignoring scientific research. But the latter is fraught with defeat in another war. And since ruin is always better than a lost war, governments tend to keep taxes low. At the same time, money to maintain the standard of living of ordinary citizens is borrowed from the market. And it turns out that first states allow large corporations to make money, and then they themselves borrow money from their owners. This is such a vicious circle.
Reducing government spending is also a painful procedure, always causing a storm of protest.
But you will still have to choose between increasing taxes and cutting spending. After all, it is impossible today to extinguish the potential growth in demand using standard measures, by raising bank rates. The reason is that governments are too indebted today. An increase in interest rates will lead to an increase in the cost of servicing them, which is hardly acceptable.
What can governments do to remove money from the economy without harming anyone? I like the worldwide tax. As soon as consumers spend more than they earn, it automatically increases. They spend less – it goes down. How to enter it? And in fact it already exists. Oil price. You can give producers $100 per barrel - they will be happy. Everything above will be a global tax. By manipulating it, you can keep the system in equilibrium for quite a long time. Since there is world profit and world inflation, then a world tax suggests itself.
In the meantime, each state is fighting potential inflation with its own unique methods, the situation remains unpredictable.
Nevertheless, we believe that there will not be a strong rise in prices in the world in the next few years. Reserves will save you from it - high unemployment, immigration, accumulated warehouse stocks, underutilization of equipment. In addition, as usual, prices will decrease due to technological progress.
Which product groups will be affected by reserves and new technologies when demand increases are shown in the table below.
Inflation is very simple: the prices of goods and services in your country are rising because... money loses its value. The cause of this economic “trouble”, leading the economy to collapse, today can be anything: wars, diseases, coups, cataclysms, mistakes of politicians (the most common reason), etc. The causes of inflation can be explained in this way. The level of production and exports in the country is falling, and accordingly the state earns less or nothing at all. , the currency of the state, and the state itself, is less and less of interest to anyone as a business partner, and it begins to little by little waste its resources (gold and foreign exchange reserves), if any. Accordingly, a difficult time is coming for the people of this country, and they go to the store for groceries not with “”, as before, but with, if the people have any. Which countries experienced the most powerful, “galloping” inflation?
1 Zimbabwe (2000-2009)
“The talk of the town” among all economists and bankers of our time is Zimbabwe. This predominantly agricultural country grew and exported tobacco, cotton, tea and sugar cane. In 2000, Zimbabwean authorities began illegally confiscating land from European farmers in order to give it to local “businessmen,” most of them veterans of the civil war of the 70s. As a result, production and exports almost completely ceased. The country suffered huge losses because... foreign investors simply stopped investing in the country's economy and imposed numerous sanctions and trade embargoes. In 2008, inflation in Zimbabwe amounted to 231,000,000% per year! Those. prices doubled every 1.5 hours!!! All these years, the authorities did nothing but print new banknotes with more and more zeros. In July 2008, three chicken eggs in a store cost 100 billion Zimbabwean dollars. In 2009, the country’s president (who, in fact, started this mess) “had an epiphany,” and the country abandoned its own currency in favor of the US dollar. The situation has improved a little, but the land that was forcibly taken from farmers remains empty.
2 Hungary (1945-1946)
Devastated by the Second World War, Hungary was left without production and, as a “Hitler accomplice,” became economically dependent on the USSR. Having paid huge reparations to the participating countries, Hungary became bankrupt with huge debts and devastation in the country. Inflation did not have to wait long. At the time of its inception in 1945, the largest denomination in the country was the ten-thousandth pengo (the currency of Hungary before the forint). A couple of months later, a bill of 10 million “pengyō” was printed, a little later - 100 million, and then 1 billion. At that time, inflation reached 400% per day - prices doubled every 15 hours! Banknotes of 1 trillion, 1 quadrillion and 1 sextillion appeared... The National Bank of Hungary might have continued the search for the largest number, but in August 1946 it all ended with the introduction of a new currency - the forint.
3 Greece (1944)
In 1941, Germany, together with Italian troops, occupied Greece. Before that, the Greeks successfully repelled the attacks of the Italians. By forcing Greece to pay a huge sum for “occupation costs,” Germany paralyzed the country’s entire economy. Agriculture, the main artery of the economy, and foreign trade completely disappeared. Hunger began. Back in 1943, the largest denomination was 25,000 drachmas, and a year later a denomination of 100 billion drachmas appeared. Prices doubled every 28 hours. The population survived only thanks to barter and natural exchange. Only thanks to the competent actions of the Greek authorities, the country’s economy got out of the “debt hole.” This happened after 7 long years.
4 Yugoslavia (1992-1994)
After the collapse of the USSR, Yugoslavia also began to disintegrate. The process was actively supported by the West, and the negative result was not long in coming. Serbia, Croatia and, in fact, Yugoslavia itself appeared. Civil war began, and the UN imposed all possible sanctions and embargoes against Yugoslavia. Production and trade even within the country came to a virtual standstill. Prices rose every 34 hours, and the government began to print money... From the largest banknote in 1992 of 5,000 dinars, Yugoslavia reached a denomination of 500 billion dinars in two years. The economy has completely withered, despite the visible efforts of the government. Only the German mark, introduced into circulation in 1994, was able to revive it.
After defeat in the First World War, Germany also experienced all the “delights” of poverty. Having paid huge reparations to the winners, the authorities did their best to restrain the rise in prices for some time, but to no avail. Every 49 hours people saw new price tags, and every month they looked in surprise at new bills of even higher denominations. The largest bill was a bill of 100 trillion marks, which actually cost less than 25 dollars. In November 1923, a new currency was introduced - the “rent mark”. At that time, it saved the economy, which later became one of the strongest in the world.
6 France (1795-1796)
The French Revolution (1789-1799) occurred at a time when France's debt reached 4 billion livres! The colossal sum was formed mainly due to the reign of the most wasteful king in history - Louis XV. The revolutionary government chose the nationalization of church lands under a bond issue as the main means of combating such debts - of course, with subsequent sale. In a “revolutionary impulse” they printed as many bonds as there had never been land in France. At the peak of inflation, prices rose every 5-10 days, and a pair of boots, which once cost 200 paper livres, had a price of 20,000. The coin, the franc, saved the situation. The authorities publicly burned all the paper notes in the treasury (about 1 billion livres) and all the machines for their production on Place Vendôme. Having thus begun the wholesale exchange of “paper” for “metal,” by the end of 1797 the French made the franc a stable currency for many years.
7 Peru (1984-1990)
In the distant past, the great Inca Empire, the Republic of Peru already in the twentieth century learned the disadvantages of economic progress. Due to problems in production and foreign trade, Peru's currency, “salt,” began to rapidly depreciate. In 1984, the largest bill of 50 thousand soles became 500 thousand. The authorities carried out a monetary reform and introduced a new currency - “inti”. But this move is nothing without resuscitating production and trade relations. By 1990, a bill of 1 thousand inti had become a bill of 5 million of the same long-suffering inti. In 1991, through many reforms, it was possible to stabilize the situation and at that time the “new salt” was equal to 1 billion salts of the 1984 model.
8 Ukraine (1993-1995)
Ukraine experienced one of the worst inflations in the post-Soviet space. Within 2 years, inflation reached 1400% per month. The reasons are the same as in other cases - a drop in production and export profits. The largest denomination after the declaration of independence was 1000 coupons. By 1995 it was already 1 million coupons. Without reinventing the wheel, the National Bank withdraws coupons from circulation and introduces hryvnia, changing at the rate of 1:100,000. At that time, this was equal to approximately 20 American cents.
At that time, amazing stories happened: people who took out loans to buy a car or a home, after a while paid off these loans from their monthly salary.
9 Nicaragua (1986-1991)
After the 1979 revolution, Nicaragua's new authorities nationalized much of the economy. Given the country's huge foreign debts, this caused an economic crisis and inflation. The largest bill of 1 thousand cordobas became a bill of 500 thousand in less than a year. In 1988 the old cordoba was replaced by a new one. This, of course, didn't help. In mid-1990, the “golden cordoba” was introduced, equal to 5 million new cordobas. It turned out that 1 gold cordoba was equal to 5 billion cordobas issued before 1987. This “cordo fermentation” slowed down a little, and later almost stopped when it was possible to resume the agricultural sector of the economy.
10 Krajina (Serbian) (1993)
Krajina is an unrecognized country, annexed to Croatia in 1998. But while still independent, it suffered an economic decline, because was unable to establish either its own production or trade with neighbors. In just a year, 50,000 dinars turned into 50 billion! Gradually, with battles and negotiations, Krajina was returned to Croatia, although many Serbs left...
Inflation as a result of the illiteracy of the authorities can be easily defeated, but provided that these same authorities look at things realistically. By borrowing money from other countries, a country can live without troubles, but for a very short time. Only by setting up production and establishing trade in your own goods, accumulating resources along the way, can you not only not be afraid of this phenomenon, but also successfully help others. Of course, with benefit for yourself. These are the market relations that man invented.
Inflation rate this is an indicator reflecting a violation of the law of monetary circulation, which is expressed in an excess of circulating money in the economy compared to the real needs for it.
Since the transition of the world economy to a system of floating exchange rates inflation rate in fact, it became a barometer of the effectiveness of the state's exchange rate strategy.
Inflation is a process that causes the depreciation of money, the loss of its purchasing power, as a result of which the prices of goods and services rise. The inflation rate gives an idea of the average value of such price changes, is calculated relative to the previous period (usually per year) and is expressed as a percentage.
Average global inflation rate
Modern inflation and its roots
The level of inflation can vary by type depending on the form of manifestation, the growth rate and the factors causing it (more about). The inflation process inevitably leads to certain consequences that affect the overall economic development of the state; such consequences can have a negative connotation, therefore, to prevent crisis situations, competent policy of the monetary authorities, which is expressed in methods, is important.
Economists consider inflation as an element of normal economic development if it is moderate in nature, in which price increases do not exceed 10% per year. However, there are cases when such figures were not annual figures, but daily ones.
As a result of the influence of external or internal factors, the country experienced hyperinflation with the ensuing consequences - a sharp jump in food prices and an increase in the number of zeros on banknotes.
7. Peru (1990) – 5% daily growth
The stagnation of the Peruvian economy began in the first half of the 80s of the last century, when, as a result of the Latin American crisis, the IMF took tough measures against the state. At that time, the country's president, Belaunde Terry, tried to adhere to reforms recommended by external creditors, which caused disapproval among the population. After the 1985 elections, Alan Garcia came to power with a populist program that only weakened the economy and led to a complete closure of access to external credit.
As a result of these actions, persistent inflation turned into hyperinflation. If in 1986 the maximum denomination of the national banknote corresponded to 1000 inti, then by 1990 a banknote with a denomination of 5 million inti was already in use.
It was in 1990 that the peak of price growth was recorded, when in August the monthly inflation rate reached 397%. The following year, the rate of devaluation of the national currency slowed down, but it was only possible to stop it completely only at the beginning of the 21st century, after replacing the inti with a new monetary unit - the sol.
6. China (1949) – 14%
After the end of World War II, China plunged into civil strife between communists and nationalists. The monetary unit was chosen as the main mechanism of the struggle for power. To finance the conflict, both sides resorted to huge budget deficits.
In 1945, the printing press worked 300 times more energetically than in 1941. This policy could not pass without a trace and led to a colossal increase in prices, which by the mid-40s were already 1000 times higher than pre-war levels.
The rapid devaluation of the monetary unit also occurred because in 1935 the Central Bank completely seized control of the national banknote and began to issue currency not backed by gold. All military costs were covered by printed money, which became more abundant in the country every day. Later, the Central Bank of Taiwan was involved in the “game,” which led to hyperinflation on the island.
To assess the scale of the depreciation of the Chinese national unit, economists provide the following figures: in 1937, $1 was worth a little more than 3 yuan, while in 1949 the American currency was already valued at 23 million yuan.
5. Greece (1944) – 18%
As a result of the occupation of Greece by the Hitlerite coalition in the period 1941-1944, the country's economy was destroyed. In addition to the fact that significant damage was caused to agriculture and foreign trade relations, the state regularly paid the costs of the occupation and provided financial support to the German army. If at the beginning of the war (1939) the Greek budget was 270 million drachmas, then a year later there was a deficit of 790 million drachmas.
Since tax revenues decreased threefold - from 67 billion to 20 billion, the leadership of the Central Bank decided to turn on the printing press. This led to hyperinflation, which peaked in 1944, when the prices of goods and services doubled every 28 hours, and the denomination of the largest banknote increased from 25 thousand to 100 trillion.
The German occupation and subsequent hyperinflation led to famine in Greece, population stratification, the emergence of black markets and a significant hindrance to economic development. The post-war government was forced to take emergency measures, including two monetary reforms in 1944 and 1953. As a result, 1 new drachma was exchanged for 50 trillion old drachmas used in the country before 1944.
4. Germany (1923) – 21%
As you know, during the First World War, Germany financed its military machine through external loans. Confident of its victory, the German government expected that all loans would be repaid by the losing side.
In addition to external debts, after the war Germany was faced with the need to pay huge reparations. In total, the debts exceeded the GDP of the country, whose leadership began to print money, gradually increasing its denomination.
Since the new banknotes depreciated very quickly, and prices doubled in 3 days, people were forced to leave their entire salary in the store in order to purchase at least some food. The peak of inflation was observed in November 1923, when one dollar was worth 4.2 trillion marks (for comparison, in 1920, $1 was worth 50 marks).
The situation was saved by introducing the Rentenmark, which was equivalent to 1 trillion papermarks that had been in circulation before. After the Rentenmark was replaced by the Reichmark in 1924, confidence in the national currency was restored to pre-war levels.
3. Yugoslavia (1994) – 65%
Yugoslavia, as a powerful geopolitical player during the Soviet era, was among the parties most affected by the collapse of the Soviet Union. Having ceased to be a link between Western and Eastern Europe, the Yugoslav Republic became a victim of intranational confrontations.
As a result of the breakup along ethnic lines into several sovereign states, the country was mired in military conflicts, which practically stopped internal trade. The situation worsened further when the UN adopted a resolution banning the export of Yugoslav products.
The newly formed Federal Republic of Yugoslavia, unlike its neighbors, remained committed to the communist system, continuing a policy of overspending and excessive borrowing, which ultimately led to a complete loss of control over the creation of money.
During the period 1993-1994, prices doubled every 34 hours, the national currency was revalued several times, and the final denomination of the banknote was 500 billion dinars. The situation was somewhat stabilized (but not stopped completely) through the introduction of a new dinar in 1994.
2. Zimbabwe (2008) – 98%
The land reform launched at the end of the 20th century by Robert Mugabe, when land previously owned by the white population began to be redistributed among the country's black residents, led to a sharp decline in the level of agriculture and practically stopped the flow of external capital.
Since the implementation of the reform was carried out, by and large, by violent methods, such actions were perceived extremely negatively by investors and international organizations (in 2002, Zimbabwe was deprived of membership in the Commonwealth of Nations due to regular violations of human rights).
"Wallet" of a Zimbabwean The "successes" of land reform, as well as the financing of the civil war in the Congo, led to huge increases in prices and unemployment in the country. The peak of inflation was observed in 2008, when the daily increase in prices approached 100%, and on an annualized basis amounted to over 100,000%. To hide the results of its policies, the Zimbabwean government even temporarily stopped publishing official data. Naturally, this did not help save the situation, as a result of which many residents of the country abandoned Zimbabwean dollars, switching to payments in American currency.
1. Hungary (1946) – 207%
In addition to the fact that the country's economy was completely destroyed after the war, Hungary had to pay serious reparations as a member of Hitler's coalition. Since all costs amounted to about half of the state budget, the treasury had to be filled by turning on the printing press. As a result, the national monetary currency penge set a world record for devaluation.
1 billion trillion Hungarian pengo banknote At the beginning of August 1945, $1 corresponded to 1,320 penge, two months later the rate rose to 8,200, and a month later to 108,000. However, the greatest growth of the dollar against the Hungarian monetary unit was observed in the spring-summer of 1946:
- March 1 – 1750000
- May 1 – 59000000000
- June 1 – 42000000000000000
- July 1 – 4600000000000000000000000000000
The completely abnormal growth of the exchange rate was stopped in August 1946 by introducing a new national currency - the forent, the equivalent of which corresponded to 4∙10²⁹ penge.
