What is Hyperinflation?
In economics, hyperinflation is defined as extreme economic inflation with prices rising at a very high rate in a very short time.
In order to understand what hyperinflation is, it is important to have clear in mind what inflation is. Inflation is a sustained increase in the general price level of goods and services in an economy over a certain period of time.
With hyperinflation, inflation reaches high levels in short times, therefore quickly eroding the real value of the local currency. In this environment, people, in order to minimize their holdings in the local currency, will switch to more stable and safe assets, like foreign currencies (US Dollar, Euro, etc.).
In an economy, from a more technical point of view, there is hyperinflation when prices have risen by more than 50% per month, which is equivalent to a yearly rate of 12,874.63%.
To illustrate the context, now in major economies around the world, the target inflation rate is at around 2% per year.
In order to measure inflation, monetary authorities and governments use the inflation rate, which is the annualized percentage change in a general price index (usually the consumer price index) over time.
Indexes are made up of baskets of goods and services that are considered representative of household purchases, and…
