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What Is The Difference Between Inflation And Hyperinflation?
Inflation is a tendency of increase in prices, either in the economy or in the industry over a period of time. For example, at the moment in India, the consumer price inflation (CPI) is around 3.68% for Sept. What this means that inflation has risen at 3.68 per cent in Sept 2015, as compared to Sept 2014.
So, when we talk of inflation we generally refer to Consumer Price Inflation. Now, there is a big difference between inflation and hyperinflation. Hyperinflation is characterized by an abnormal increase in prices.
This is largely due to extraordinary circumstances. Hyperinflation can occur because of events like war, political uprising, sudden increase in prices of commodities like crude oil etc.
What hyperinflation means is that there is a sudden supply shock and money is not enough to buy goods and services. The government during a period of this kind of inflation may use extraordinary measures like using barter system, using gold to buy goods and services etc.
Difference Between Inflation And Hyperinflation
| Inflation | Hyperinflation |
| Characterized by a price rise that is well under control. | Price rise leads to inflation of greater than 50% |
| Largely witnessed during more steady times. | Extra ordinary times like wars, economic collapse leads to hyperinflation. |
| Monetary tools are used to push inflation lower or higher. | Very difficult to control. |
| Part of economic data these days. | Unheard of in recent times. |
One of the worst hyperinflation that was ever seen was in Hungary after the World War II. It was a case where prices were doubling every 15 hours. That is a mind boggling figure.
It's believed that by 1922, Austria was witnessing inflation that was about 1426%. This kind of figures are unheard of today and hyperinflation has almost evaporated these days.
In fact, countries are looking at inflation that is just not happening. For example, in the US, the Federal Reserve has kept interest rate hike on hold, as inflation is just not picking up. The Fed is reluctant to hike interest rates, as it is not sure, if inflation will reach its target level of 2 per cent.
Similar, is the case in Europe, where the ECB is pushing through an easing programme to push inflation higher.
This is remarkably different from an era, where there was hyper inflation.
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