What is Inflation?
Inflation, by definition, is a general increase in prices and a fall in the purchasing value of money. There are four types of inflation, Galloping Inflation, Hyper-Inflation, Creeping Inflation, and Walking Inflation. But I’m only going to talk about Hyperinflation and Creeping Inflation because they are the most common types.
Hyperinflation is the most damaging type of inflation. I mean that stable inflation is like a small fire; hyperinflation is basically pouring gasoline on that fire, causing a small concern into a primary concern that will have consequences.
An example of hyper-Inflation is what happened in Germany after World war I. Germany suffered a lot after World war I, cities were reduced to rubble, millions had died, and the German government was forced to pay up to 132 billion German marks (roughly $400 billion in today’s dollars) in reparations to the Allies. To pay the Allies, Germany started printing more and more money. Contrary to popular belief, printing more money does not solve the problem of not having enough. Instead, it makes the value of the money worthless. As more money is being printed, the supply and demand of the money are increasing. In 1919 bread was worth one German mark, but after printing more money, the same bread cost one million marks in 1923! The value of the paper money had declined from 4.2 marks per U.S. dollar in 1914 to one million marks per U.S dollar by August 1923.
Another example of hyperinflation and the worst hyperinflation case in history was Hungary in 1945-1946. After the second world war, everyone in Europe was thrown into a post-apocalypse nightmare. Many countries' economies were now garbage because they had to pay debts for the war. Hungary was one of those countries. After World War II, Hungary was put under the Soviet Union’s sphere, forcing the country into communism, not doing much to help Hungary's economy. The Hungarian economy in 1945 started out pretty good, with one U.S dollar equaling out to about 5 Hungarian pengos. As Germany had after World War 1, Hungary began printing more money to save the economy, but that didn’t work. In June 1945, the pengo went from five pengos per U.S dollar to 33 per U.S dollar. In the following months, the worth of pengos plummeted down to one U.S dollar equaling 460000000000000000000000000000 (4.6×1029) Hungarian pengos in July of 1946! The percent of Inflation was about 41.9 quadrillion percent per month!
The Hungarian economy did stabilize after the 1946 hyperinflation with a new currency, the forint. One forint for every 400,000 quadrillion pengő (that’s a 4 followed by 29 zeros.) Fortunately, the country’s economic situation stabilized. Hungary still uses forint, but the plan is to transition to Euro in the future.
The other most common type of inflation is creeping inflation. Creeping inflation, by definition, is low, persistent inflation over time. Creeping inflation is generally not noticed at first but significantly reduces the value of a currency. For example, if the inflation rate is 3%, prices will double in only 33 years. So let's say you buy a chocolate bar that costs $1.50. In 33 years, creeping inflation will make that same chocolate bar cost 3 dollars. From what I know, there is no quick way to solve the issue of creeping inflation. Creeping Inflation doesn't seem to have an immediate effect right now, but it will in the future. The annual inflation rate for the United States is 2.6% after rising 1.7% previously the year, according to the U.S. Labor Department data on April 13.
The inflation rate will continue to rise in the coming years, affecting everyone in the United States. We can do about Inflation to control the supply of money and make sure we don’t overprint money. Another thing we can do is Wage controls. Wage control limits the percentage of a wage or salary that can increase every given year. In theory, this will help to reduce inflationary pressures.
