Page 102 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes define ‘galloping inflation’ more precisely. According to them, “Inflation in the double- or triple-
digit range of 20, 100 or 200 percent a year is labeled galloping inflation.” This definition is not
less imprecise because double and triple-digit inflation ranges between 10 and 999 percent and
economic effects of inflation in this range will be immensely different. A country with a 900
percent annual inflation will have devastating effects whereas a country with 20-30 percent
inflation can manage without pressing the alarm bell.
However, the post-War I inflation in Germany is often cited as a classic example of galloping
inflation though some would call it hyper inflation. The wholesale prices in Germany increased
140 percent in 1921 and a colossal 4100 percent in 1922. In 1923, prices increased in Germany at
an average rate of 500 percent per month. In recent times, Argentina, Brazil, Mexico, Peru and
Yugoslavia (former) had galloping inflation during the 1970s and 1980s. The annual average
rate of inflation in these countries during 1980-91 was exceptionally high : Argentina—416.9
percent; Brazil—327.6 percent; Peru—287.3 percent; former Yugoslavia—123.0 percent; and
Mexico—66.5 percent. Incidentally, these cases are also cited as the examples of hyper inflation.
(iii) Hyper Inflation
In general, a price rise at more than three-digit rate per annum is called ‘hyper inflation’.
According to some economists, however, “Hyperinflation is often defined as inflation that
exceeds 50 percent per month.....An inflation rate of 50 percent per month implies a more than
100-fold increase in the price level over a year” During the period of hyper inflation, paper
currency becomes worthless and demand for money decreases drastically. Germany suffered
from hyper inflation in 1922 and 1923 when wholesale price index shot up by “100 million
percent between December 1922 and November 1923.” November 1923 was the worst period of
hyper inflation in Germany— “from January 1922 to November 1923, the price index rose from
1 to 10,000,000,000.” Hungarian inflation of 1945-46 is the worst case of hyper inflation ever
recorded : the “rate of inflation averaged about 20,000 percent per month for a year and in the
last month prices skyrocketed 42 quadrillion percent.”
The price rise in zillion and quadrillion percentage makes the meaning of hyper inflation obscure.
It goes beyond the mental vision of the number. The following anecdotes about German hyper
inflation would reveal what happens during the period of hyper inflation.
• People carried basket-load of money to the market and brought goods in pocket.
• It was cheaper to burn currency notes to make tea rather than buying it in the tea-shop.
• Price of a house in pre-inflation period was just sufficient to pay a day’s rent in post-
inflation period.
• At the time of entering the cafe, the price of a cup of coffee was 4,000 marks, which rose to
8000 marks before one could finish his coffee.
In the recent past, Argentina, Brazil, and Peru had hyper inflation in 1989 and 1991. The rates of
inflation in these countries in 1989 and 1990 are listed in Table 2.
Table 2: Rate of Inflation in Argentina, Brazil and Peru-1989 and 1990

Country 1989 1990

Argentina 3079.8 percent 2314.0 percent
Brazil 1287.0 percent 2937.8 percent
Peru 3398.6 percent 7481.7 percent

(Source : CMIE, World Economy & India’s Place In It, October 1993,)

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