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Inflation and Consumer Price Indexes

One of the most unfortunate situations in a country’s economy is inflation. A more extreme form of it is hyperinflation, which can be defined as the rapid increase in inflation and dramatic drop in the value of a currency (Mastan Travel, 2013). The prominent historical example of this phenomenon was German hyperinflation in 1923, when their money started to lose its value after the First World War (Mastan Travel, 2013). During this period, the prices for various products rose tremendously, making people spend billions of marks for daily needs. For example, the price of a newspaper that could be bought for one mark in 1922 increased to 70 million marks the next year because the rate of inflation was growing every four days (Mastan Travel, 2013). I think that such rapid economic changes are harmful to the economy in the short term, but they can be beneficial in the future. The damage from hyperinflation for people and corporations is enormous because it makes financial operations inconvenient and useless. The long-term advantage of such disturbances is a renovation of the economy due to introducing the new currency.

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Another hyperinflation occurred in one of the Latin American countries, Venezuela. According to Pittaluga et al. (2021), the inflation rate in this country exceeded 2500% by the end of 2017. The main reason for hyperinflation in Venezuela was introducing more money to the economy to maintain social programs proposed by the government (Pittaluga et al., 2021). It appears that, in this case, this financial disaster resulted from political manipulations. Although Venezuelan leaders aimed to improve the public situation, injecting excessive finances into the market will inevitably lead to inflation. Therefore, banks and governments should estimate the possible consequences of their programs to avoid harming the economy.

References

Mastan Travel. (2013). Horror stories of hyperinflation: Germany in 1920s [Video]. YouTube. Web.

Pittaluga, G. B., Seghezza, E., & Morelli, P. (2021). The political economy of hyperinflation in Venezuela. Public Choice, 186(3), 337-350. Web.

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StudyCorgi. 2022. "Inflation and Consumer Price Indexes." November 4, 2022. https://studycorgi.com/inflation-and-consumer-price-indexes/.

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