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Inflation Impact: Overview and Lessons

Inflation or a significant increase in prices is not a simple aspect that can easily be measured or explained. It is a complicated event that can damage the welfare of people and households, principally when it is not balanced by equivalent raises in wages, which leads to reducing buying power (Bernstein, J., Tedeschi, 2021).

The incidents of hyperinflations have happened many times over the 20th century, 55 times exactly, while the governments of that countries gambled with the fiat currencies backed up by the trust of the nation of the particular country. The main forerunner of hyperinflation is a war that demolishes the economy’s capital stock and seriously decreases output and destructive monetary and fiscal policies take place in these cases at all times. The most significant episodes of hyperinflation were as follows: Germany (August 2022-December 2023), Hungary (August 1945 - July 1946), Yugoslavia (April 1992 - January 1994), Zimbabwe (March 2007-November 2008), and The Great Inflation in the USA (1965-1982) (Boesler, 2014).

The daily inflation rate in Germany in 1923 was 21 percent and prices doubled every three days and 17 hours. Things got so bad that money earned today was worthless the next day. Germany suffered from hyperinflation because of the consequences of the war and the constantly increasing debt of the government. The workers came out on strikes, goods were not being produced, and this considerably weakened the economy. Intending to pay the striking employees, the government just printed money. There was a moment when it cost more to print a note compared to what it was worth. Also, during the crisis salary was paid twice a day, as far as prices increased dramatically from lunch to dinner. The process of hyperinflation ended by establishing the new currency - Rentenmark. The prices have stopped growing since the number of notes in circulation was limited. This measure helped to rehabilitate the trust in the economy nationally and worldwide (Bomberger, Makinen, 1983).

Figure 1: Illustration of the IMF parcelling out loans (Dettmer, 2020).

Hungary's daily inflation rate was 207 percent, and prices doubled every 15 hours in times of the worst hyperinflation from July 1945 until August 1946. The agricultural sector of the country was stroked by The Great Depression and the government’s debts that lead to the devaluation of the currency to make up for costs by alleviating monetary policy. Stabilization of the situation is accomplished by exchanging old currency for new one. The rate was 400 octillion to one. Another measure that contributed to the improvement was the striving to stabilize the value of tax revenues by issuing new currency for the collection of taxes (Grossma, Horváth, 2000).

The dreadful inflation occurred in Zimbabwe in 2008. At that time daily inflation rate amounted to 98 percent, the price doubled every 25 hours. The annual level of inflation reached a peak in November 2008, it got to 89.7 sextillions percent. The Reserve Bank of Zimbabwe did not take the necessary steps to measure the inflation rates. The only initiative, in this case, was to act by the implementation of Purchasing Power Parity. To apply this method is needed to have the data on the exchange rate between the local currency and a stable currency which is impossible in Zimbabwe (Hanke, 2017). The resolution of the hyperinflation problem was affected by the replacement of the Zimbabwe dollar with the US dollar. The inflation went down, but in 2018 the new local currency was introduced over again (Muneno, 2022).

The split-up of Yugoslavia into several small countries, the following wars, and industrial and trade collapse were the origins of the hyperinflation in 1992-1994 years. The daily inflation rate has been at the level of 65 percent, prices doubled every 34 hours. In addition, simultaneously, Yugoslavian export was under an international embargo. That defeated the output even more. Bureaucracy also added to these factors, increasing the federal deficit (Boesler, 2014). The situation was managed with Monetary Reconstruction and Economic Recovery Program which has been developed by professor Avramović in 1994. The main measures were connected with the monetary and fiscal spheres (Petrovich et al., 1998).

Chart 1: Inflation as measured by the Price Consumer Index (Federal Reserve History, n.d.).

The Great Inflation in the USA occurred during the period from 1965 to 1982, it changed the policy of the Federal Reserve and the whole banking system. That was a really difficult time for the US economy. At first, the rate of inflation has been at the level of 1 percent, and unemployment - was at 5 percent. Over a period of 10 years, the inflation rate reached 12 percent, and unemployment - 7 percent. The highest rates were fixed in 1980: inflation -14.5 percent, unemployment -7.5 percent (see Chart 1) (Bryan, 2013).

The measures that ended the crisis were taken by Paul Volcker, the chair of the Federal Reserve System, who created two short recessions to reduce spending and force inflation (Mattews, 2022).

Inflation During the Covid-19 Period

The recent pandemic induced the unconventional recession and the prompt recovery of the economy is not expected. Fortunately, pandemics like Covid-19 are rare, but some examples exist to draw historic parallels. For instance, the pandemic caused by Spanish Flu in 1918 and the Asian Flu pandemic in 1957, triggered a nine-month recession, a weakening of inflation, and post-pandemic growth of the economy (Bernstein and Tedeschi, 2021).

Chart 2 shows some increase, but in a year, inflation decreased, and again, the curve went up in 2021. This happened as a result of price growth in February 2021. Another reason for the inflation during the Covid-19 period is increasing the cost of production. Resources, energy, and raw materials have become more expensive and businesses passed that expense to consumers. This is called “cost-push inflation” by economists. This kind of inflation is transitory with no effect on the value of the economic indicators.

Chart 2: US COVID-19 Inflation (National Bureau of Economic Research, 2020)

Other reasons for the inflation were chain disruptions and pent-up demand. Due to the lockdowns and other restrictions, supply chain disruptions occurred. As a consequence of that, transportation costs increased due to more complicated logistics, of course, later prices went up. Many services, sensitive to the pandemic, such as restaurants, hotels, tourist, and travel industries, suffered curtailed demand due to the public health restrictions. Gradually, as restrictions were lifted, the demand for these services raised, thanks to the fact that households accumulated savings throughout the pandemic period. This kind of inflation is called “pent-up demand” (Bernstein and Tedeschi, 2021).

Inflation in a Post-Covid Period

Global post-pandemic inflation has increased to 7.5 in August 2022, in contrast to the stable 2 percent indicator of the last pre-pandemic decade, which is a phenomenon. The development of post-pandemic inflation appears to be caused by local factors such as supply chain disruption and increases in commodity prices. Inflation has become more quantitatively significant (Binici et al., 2022).

The annual inflation in the European area was 8.5 percent in January, that is a decrease of the indicator compared to 9.2 percent in December 2022 (see Chart 3) (Eurostat, 2023).

Chart 3: Euro area annual inflation and its main components (Eurostat, 2023).

The annual inflation rate in the US went down to 6.5 percent in December 2022, according to the market forecasts (see Chart 4) (Trading Economics, 2023).

Chart 4: The US annual inflation rate (Trading Economics, 2023).

The survey of the Bloomberg economists states that consumer prices will remain increased to the level of 5 percent by the end of 2023 and then slightly drop to 1.5 percent (Smialek, 2023). One of the main reasons for the post-covid inflation became the large amount of free money accumulated by citizens during the pandemic, which was drifting apart from the labor market. The 2021-2022 inflation was not as threatening as the previous Great Inflation, and The Federal Reserve System reacted properly by raising interest rates (Mattews, 2022).


Analyzing all the cases of the biggest hyperinflations it can be concluded that the main causes of the hyperinflation were wars with the subsequent destruction of the country’s industry and creating a deficit of goods and services. And pandemics create chain disruptions, pent-up demand, and a higher supply of money. Post-Covid-19 global inflation is a phenomenon because in previous similar cases, inflation after the pandemic was relatively low.

Bibliographical References

Bernstein, J., Tedeschi, E. (2021). Pandemic Prices: Assessing Inflation in the Months and Years Ahead. The Whitehouse.

Binici, M., Centorrino S., Cevik, S., Gwon, G. (2022). Here comes the change:

The role of global and domestic factors in post-pandemic inflation in Europe.

Boesler, M. (2014). How 9 countries saw inflation explode into hyperinflation. Insider.

Bomberger, W.A., Makinen, G. E. (1983). The Hungarian Hyperinflation and Stabilization of 1945-1946. Journal of Political Economy.

Bryan, M. (2013). The Great Inflation. Federal Reserve History.

Eurostat (2023). Euro area annual inflation rate and its main components.

Grossman, P. Z. and Horváth, J. (2000). "The Dynamics of the Hungarian Hyperinflation, 1945-6: A New Perspective" (2000). Scholarship and Professional Work - Business. 29.

Hanke, S. (2017). Zimbabwe Hyperinflates Again, Entering the Record Books For A Second Time In Less Than A Decade. Forbes.

Muneno, J. (2022). Inflation is spiking in Zimbabwe (again). Why high-interest rates aren’t the answer. The conversation.

Mattews, D. (2022). How the Fed ended the last Great American inflation - and how much it hurt. vox.

Trading Economics (2023). The United States Inflation Rate. Trading Economics. Retrieved from

Petrovic, P., Bogetic, Z., Mladenovic, Z. (1998). The Yugoslav Hyperinflation of 1992-1994: causes, dynamics, and money supply process. Semantic Scholar.

Smialek, J.(2023). Inflation Is Cooling, Leaving America Asking: What Comes Next?

Visual Sources

Cover image: Dettmer, O. (2020). How to pay for the pandemic? [Illustration]. Economist.,quality=90,format=auto/sites/default/files/20200328_FND000.jpg

Figure 1: Dettmer, O. (2020). Illustration of the IMF parcelling out loans. [Illustration]. Economist.,quality=90,format=auto/sites/default/files/images/print-edition/20200411_FND000_0.jpg

Chart 1: Inflation as measured by the Price Consumer Index. (n.d.). [Chart]. Federal Reserve History.

Chart 2: Inflation Dynamics during COVID-19. (2020). [Chart]. National Bureau of Economic Research.

Chart 3: Eurostat. (2023). Euro area annual inflation rate and its main components. [Chart]. Eurostat.

Chart 4:The United States Inflation Rate. (2023). [Chart]. Trading Economics.


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Yuliia Sivitska

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