The disease of hyperinflation

When inflation gets too high, it becomes difficult to control. Before you know it, it’s unstoppable. It hurricanes through entire continents, raising interest rates, mortgage payments and living costs, devastating the value of people’s savings and quality of life. It’s the high-risk equivalent of a hefty pay cut.

As we’ve seen before, it can lead to recession and be the death of businesses and governments. In extreme cases, it can destabilise entire countries and lead to war.

I’m not exaggerating.

Consumer prices in Venezuela grew at an astonishing year-on-year rate of 65,000 percent in 2019 and by 2020 it was ranked the 88th biggest country in the world by GDP. Previously, in 2013 it had only been ranked half of this, sitting at 42nd.

There are other recent examples in Zimbabwe, Sudan, Lebanon, and the former Yugoslavia. One might remember school history lessons showing photos of people pushing wheelbarrows full of banknotes in Hungary in 1946, where living prices doubled every 15 hours.

Sure, we’re not at these levels yet, but the genie has been let out of the bottle and this time, it’s global. It’s being felt by the world’s largest economies and emerging markets as well as poorer ones. Add this to two years of a pandemic and a raging energy crisis, and we have a very huge crisis on our hands.

Today’s surge of inflation has spiked rapidly – and its proving to be much more stubborn and far more difficult to control than central banks thought possible.

Oil prices rising to infinity and beyond have led to increased fuel prices and costs to manufacturing. Expensive fertilisers and farming resources have ensured higher food prices for all. The global disruption of supply chains caused by the pandemic and Brexit add to the problem as delivery costs have spiralled too.

Everything is interlinked and once the snowball of inflation starts rolling down the hill, it’s difficult to stop it.

Eachday, homeowners have been receiving notices of their mortgages increasing, on top of heating costs rising four-fold. The price of filling up my family vehicle this morning was the same price as I paid for my first car.

It’s not just the oil price though. The post-pandemic economy is booming while companies are finding it difficult to cope with demand. Staff shortages are leading to higher wages and the Government is raising public taxes to pay the COVID-19 bill.

There is also ‘greenflation’. The cost of us all becoming more responsible citizens striving for a net-zero economy also comes with well-documented increases in consumer costs and energy prices on the way.

The solution?

Sadly, there’s pain waiting for us all as central banks and Governments use price and wage controls to halt this disease of hyperinflation. The inevitable job losses could tip countries into recession. Money supply will have to be reduced and interest rates raised to bring inflation under control and finally, we will have to beg the nations with appalling human rights practices to increase the oil supply which will lead to amplified price reductions elsewhere.

It’s never a perfect world, but we face a dilemma. Should our integrity in relation to foreign policy be compromised for the greater good?