The disease of hyper-inflation

When inflation gets too high, it becomes difficult to control and eventually it’s unstoppable. It blows through entire continents, causing price hikes, raising interest rates, increasing mortgage payments and devastating the value of people’s savings. It’s the equivalent of a hefty pay cut and can ruin economies. It can lead to recession and can be the death knell for businesses and governments and even destabilise entire countries. In the past, it has even led to war.

I’m not exaggerating.

Consumer prices in Venezuela grew at an astonishing year-on-year rate of 65,000 per cent in 2019 and by 2020 its GDP had dropped so that it was ranked the 88^th biggest country in the world. Previously, in 2013, it had been ranked as high as 42^nd. There are other recent examples in Zimbabwe, Sudan, Lebanon, and across the nations of former Yugoslavia.

School children may remember history lessons showing photos of people pushing wheelbarrows full of bank notes in Hungary in 1946, where prices doubled every 15 hours.

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 economies and emerging markets as well as poorer countries.

Today’s surge of inflation has spiked quickly and is proving stubborn and much 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 have risen exponentially. Expensive fertilisers and farming products have ensured higher food prices and 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 ball of inflation starts rolling down the hill, it’s difficult to slow it down or stop it.

People 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, economies are opening fast, and companies are finding it difficult to cope with demand. Staff shortages are leading to higher wages and the government are raising taxes to pay the covid bill.

There is also “greenflation” – the cost of us all becoming more responsible citizens, striving for a net zero emission economy.

The solution?

Sadly, there’s pain in waiting for us all as central banks and governments use price and wage controls to halt this disease of inflation. These will inevitably lead to job losses and 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 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, and we face a dilemma of whether our integrity in relation to foreign policy should be compromised for the greater good.