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Hyperinflation Usually Produces Hype, an Antidote in One Table

Steve H. Hanke

The literature on hyperinflation is replete with ad-hoc
definitions, ill-defined terminology, and a lack of concern for
clear, uniform metrics. Sloppy reasoning and hype prevail. To fill
the void, I set out in 2010, at the invitation of the editors of
the authoritative Routledge Handbook of Major Events in Economic
, to construct a new, comprehensive table of the
world’s hyperinflation episodes. This was an arduous task,
fortunately made less arduous because I was assisted by a team of
Johns Hopkins research assistants led by Nicholas Krus.

The results of our research — the Hanke-Krus World
Hyperinflation Table
– were first published by Routledge in
2013. The table contained all 56 countries that had ever
experienced a hyperinflation. In late 2016, we amended the Table.
It was then that Venezuela became the 57th official, verified
episode of hyperinflation and was added to the Table (see the table

For the Hanke-Krus World Hyperinflation Table Notes and
Sources, see Hanke-Bushnell working paper

Just what are the criteria required for a country to qualify for
the hyperinflation designation? An episode of hyperinflation occurs
when the monthly inflation rate exceeds 50% for 30 consecutive
days. In the case of Venezuela its monthly inflation rate first
exceeded 50% on November 3, 2016 and continued to exceed 50% per
month for 42 days, ending on December 14, 2016 (see the chart

Venezuela Monthly Inflation Rate.

But, just how do we measure inflation in countries that are
experiencing elevated inflation rates? In selected countries,
including Venezuela, my team at the Johns
Hopkins-Cato Institute Troubled Currencies Project (TCP)

measures monthly and annual inflation rates each day. Unlike many
of the numbers tossed around in countries with elevated levels of
inflation, our measurements meet academic standards. The TCP
measurements are based on changes in black market (read: free
market) exchange rates. The principle of purchasing power parity
(PPP) is used to translate exchange rate changes into estimates of
implied inflation rates. When inflation is elevated, this method
provides deadly accurate estimates.

Today, Venezuela remains in play. Its socialist economy is
imploding and its currency, the bolivar, is collapsing. This gave
rise to the world’s 57th episode of hyperinflation in late 2016.
And in 2017, there was a period in which the monthly inflation rate
exceeded 50% for 19 consecutive days. At present, the monthly rate
sits at 31%.

Most of what is reported in the press are not measurements of
actual inflation rates. Rather, they are forecasts for Venezuela’s
inflation that have been made by various international institutions
­- most notably the International Monetary Fund. These forecasts
are nothing more than guestimates — finger-in-the-wind
forecasts. They are carved in stone and repeated ad nauseam in the
financial press. Unfortunately, as with most things in finance, the
95% Rule reigns — 95% of what you read in the financial press
is either wrong or irrelevant.

Steve Hanke is
a professor of applied economics at The Johns Hopkins University
and a senior fellow at the Cato Institute.