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What is hyperinflation and how does it differ from "normal" inflation?

Inflation is a word we are seeing more and more of in the daily news. You may even hear the word hyperinflation batted around. What’s the difference between the two?

Hyperinflation is when prices in an economy are increasing at a rapid and excessive rate – something along the lines of price increases of 50% or more per month. In contrast, “normal” inflation is when there’s an orderly and measured increase in the prices in an economy. Here in the U.S., historical inflation is considered normal and in the range of about 3% per year.

The number one cause of hyperinflation is government printing too much money for too long thereby flooding the economy with excess liquidity. Another cause is when people lose confidence in the currency and so begin spending their money immediately upon receipt otherwise they may be left with cash that is worthless. This has occurred during wars, for example, when the productive capabilities of a country may be severely reduced.

Examples of hyperinflation include Venezuela this past decade, Germany following World War I, Hungary at the end of World War II, and Zimbabwe in 2007.

What people get wrong about hyperinflation is that many believe that it is probable for the United States to experience hyperinflation with the stimulus we have in the economy now. Although a period of hyperinflation is always a possibility for the U.S., it is highly unlikely that we experience it currently or in the near future.

The best way investors can protect themselves from hyperinflation is to buy financial assets denominated in currencies that are unrelated to the currency the country experiencing the hyperinflation uses – for example: stocks, bonds or money market instruments. Additionally, investors should buy financial assets in currencies used in developed nations with a history of political and price stability with great transparency in their financial markets.

If you are interested in learning about The Aqueduct Strategy and/or getting your financial house in order, please schedule a time to speak with us now. LTG Capital is committed to reducing concerns for our clients. We’d be happy to learn more about your goals and objectives.


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