What Is Inflation And Hyperinflation? How Does It Increase Or Decrease? | Germany Hyperinflation 1923

One egg for 320 Billion Marks and one tram or streetcar ticket for 50 billion Marks, and even people pasted notes on the walls of their houses because they were cheaper than wallpaper. Not only this, just one US dollar was equal to a handcart full of currency notes of more than 400 crores. It was the extreme inflation that emerged in Germany in 1923 and the trouble of this terrible inflation still scares the country. However, inflation very rarely goes to this extreme, as it can be low or high, and always works on the same principle. Inflation is a Latin language word that means expansion. That means, an increase in the money supply in the context of an increase in prices, as the price of things increases, the purchasing power of people decreases, because fewer things are available for the same money. But why does this happen? There are mainly three reasons responsible for this.

1. Inflation due To An Increase In Demand

If all of a sudden people start buying wood to build a house, then its demand will increase. If the manufacturers are unable to supply according to the sudden demand, then the wood will become expensive. So price is a way of balancing demand and supply.

2. Inflation Due To Increase In Cost

For example, if the supply of raw materials used in a computer chip decreases, then the chip will be expensive. The cost of transport also increased, because of the rise in container and oil prices. Companies also raise prices because the cost of buying something for them also increases, such as the amount they have to pay or spend to buy or obtain something.

Read:-Hungary 1946 Inflation - The Worst Case of Inflation in History

3. Inflation Based On Money Supply

In this, a bankrupt country prints a large amount of currency to pay the debt. But as the money supply increases, the value of people's savings decreases. To measure inflation, economists create an imaginary shopping bag containing essential goods and services. These prices are compared month by month, and their percentage difference is the inflation rate. A rate below 5 percent is called slow inflation, a rate up to 20 percent is considered fast inflation, and a rate above 50 percent is called hyperinflation.