When you think of inflation, you might think of the gradual increase of prices that you notice on familiar products. Can you remember how much a bottle of soda cost when you were younger, and how much it costs now?
The pain of inflation can range from a nagging irritation to life-and-death, depending on which currency you are paid in and hold your wealth in.
<aside> 💥 80% of people live in countries where the local currency has a higher inflation rate than the US dollar.
</aside>
High Inflation makes many normal life things a lot more difficult. Let's look at which areas of life are tougher with high inflation.
Savings are critical.
Everyone has unexpected events in their life. Without sufficient savings, these events can either leave us without what we need or leave us paying fees and interest on outstanding bills.
If someone puts a medical operation on a credit card, for example, they may receive the care they need but end up paying outrageous interest over the long run.
When inflation is high, the value of savings erode over time. The result is that people are less inclined to save they money, and those that do, see the value fall.
If the price of everything around you goes up by 10%, but your wages also go up 10%, you can buy the same and are no worse off.
Unfortunately, wages are the last to respond to rising prices. Employment is "sticky," meaning that people cannot easily change jobs, so employers do not need to increase wages to pace with price increases.
Businesses also face higher prices from suppliers in this case as well, and combined with the uncertainty that rising inflation brings, often cannot afford to give wage increases despite rising prices.
<aside> 💡 Hyperinflation is very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. Wikipedia
</aside>
"Hyperinflation" is *not merely "*really high inflation." Once rates are very high and rising quickly, as in some countries like Venezuela & Argentina, the nature of the impact itself changes. Strange things start to happen like stores don't know how much to charge for things because the price.
Consider the following anecdote from a 'This American Life podcast episode', where a Brazilian describes what it was like having prices increase so quickly at a supermarket in 1994 →
This is the reality that Mariano Conti and his countrymen face in Argentina now. Mariano is the MakerDAO team and lives in Argentina, shared the impact of this recently:
Hyperinflation at the supermarket
Hyperinflation at the supermarket
