Tuesday, August 21, 2012

A Systematic List of Hyperinflations

Most discussions of hyperinflation focus on a particular episode: for example, here's my post from last March 5 on "Hyperinflation and the Zimbabwe Example." But Steve H. Hanke and Nicholas Krus have taken the useful step of compiling a list of "World Hyperinflations" in an August 2012 Cato Working Paper. 

Hanke and Krus define an episode of hyperinflation as starting when the rate of inflation exceeds 50% in a month, and ending after a year in which inflation rates do not exceed this level. But the task of compiling a systematic and well-documented list of hyperinflations is tricky. Data on prices can be scarce. While data on consumer prices is preferable, looking at data on wholesale prices or even exchange rates is sometimes necessary. As one example, the Republika Srpska is currently one of the two main parts of Bosnia and Herzegovina, which in turn was formed from the break-up of Yugoslavia. But for a time in the early 1990s, the Republic Srpska had its own currency circulating. Finding monthly price data for this currency is not a simple task! As another example, the city of Danzig in 1923 carried out its own currency reform: Danzig was at the time technically a free city, but heavily influenced by the German hyperinflation around it, in the midst of the overall German hyperinflation at that time. 

Their paper offers a much fuller discussion of details and approaches, but here is a taste of their findings: a much-abbreviated version of their main table showing the top 25 hyperinflations, measured by whether the single highest monthly inflation rate exceeded 200%.

A few themes jump out at me:

1) The infamous German hyperinflation of 1922-23 is near the top of the list, but ranks only fifth for highest monthly rate of inflation. The dubious honor of record-holder for highest monthly hyperinflation rate is apparently Hungary, which in July 1946 had a hyperinflation rate that was causing priced to double every 15 hours. The Zimbabwe hyperinflation mentioned above is a close second, with a hyperinflation rate in November 2008 causing prices to double every 25 hours.

2) The earliest hyperinflation on the list is France in 1795-1796, and there are no examples of hyperinflation in the 1800s.

3) Many of the hyperinflations on the list occur either in the aftermath of World War II, or in the aftermath of the break-up of the Soviet Union in the early 1990s.

4) Finally, Hanke and Krus state in a footnote that they would now make one addition to the table, which would be the most recent episode of all: the experience of North Korea from December 2009 to January 2011.

 "We are aware of one other case of hyperinflation: North Korea. We reached this conclusion after calculating inflation rates using data from the foreign exchange black market, as well as the price of rice. We estimate that this episode of hyperinflation occurred from December 2009 to mid-January 2011. Using black market exchange rate data, and calculations based on purchasing power parity, we determined that the North Korean hyperinflation peaked in early March 2010, with a monthly rate of 496% (implying a 6.13% daily inflation rate and a price-doubling time of 11.8 days). When we used rice price data, we calculated the peak month to be mid-January 2010, with a monthly rate of 348% (implying a 5.12% daily inflation rate and a price-doubling time of 14.1 days)."