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Adeel T. Umer

28 May 2010

Hyperinflation in Zimbabwe

Inflation is defined as a general rise in prices of goods and services produced within the

boundary of the country over a fixed time period. The rise in prices leads to a fall in the purchasing

power of money i.e. the same amount for money can now be used to buy a lesser amount of goods

and services. Similarly, hyperinflation is defined as a situation in which the price level rises very fast,

causing severe damage to a country's economy and particularly to its currency. In other words,

hyperinflation is when the rate of inflation is so high that it has to be calculated monthly, weekly or

even daily, because the prices rise at a huge pace. Hyperinflation usually precedes a long drawn out

inflation period, paired with an increase in the supply of money in the economy. This report will

discuss hyperinflation in Zimbabwe, mainly the reasons and causes of hyperinflation and the ways to

combat it.

Hyperinflation was never recorded before the use of paper currency as money, instead

metals such as gold were used which never lost their value. The first recorded instance of

hyperinflation was during the French revolution, when the rise in monthly price level was estimated

to be greater than double. The 20th century has shown the world nearly 30 examples of

hyperinflation destroying the economy, a scenario commonly witnessed after the two World Wars.

The deadliest monthly inflation rate was witnessed by Hungary, when halfway through the year

1946; prices took a little more than half a day to double (see Table 1). Other countries namely

Yugoslavia, Germany, Greece and China respectively join Hungary in the list of top five countries in

terms of the highest monthly inflation rates in the 20th century (see Table 1). Similarly, the 21st century

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has been unfortunate enough to witness its first hyperinflation recorded in Zimbabwe, during the 21

month period starting from March 2007 till November 2008, leading to an extinction of the

Zimbabwean Dollar.

Table 1

Highest Monthly Inflation Rates in History

Country Month with highest

inflation rate

Highest monthly

inflation rate

Equivalent

daily inflation

rate

Time required

for prices to

double

Hungary July 1946 1.30 x 1016% 195% 15.6 hours

Zimbabwe Mid-November 2008

(latest measurable) 79,600,000,000% 98.0% 24.7 hours

Yugoslavia January 1994 313,000,000% 64.6% 1.4 days

Germany October 1923 29,500% 20.9% 3.7 days

Greece November 1944 11,300% 17.1% 4.5 days

China May 1949 4,210% 13.4% 5.6 days

Source: Prof. Steve H. Hanke, February 5, 2009.

The commonly blamed reason for hyperinflation in Zimbabwe is the instability of the

government, since the poorly held Presidential elections. The Zimbabwean government however,

points the blame on the corruption in the business environment and illegal sanctions imposed by

Britain and other countries Other reasons for hyperinflation in Zimbabwe include poor performance

over the last decade by all economic sectors, worsening poverty levels and high unemployment.

Shortages of food and other necessities due to decreased output from farming and manufacturing

have also sparked up the inflation level, as the economy has been forced to rely on imports to feed

the country.

The first sign of hyperinflation in Zimbabwe began in March 2007 when the monthly

inflation rate soured to more than 50% (see Table 2). The inflation rate then began a roller coaster

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ride by doubling up the next month before falling back to 50% and rising up again. It was in the

summer of 2007 when the economy seemed to have some control over inflation which declined to

as low as 11% before rising up again (see Table 2).

Table 2

Zimbabwe’s Hyperinflation

Date Month over Month

Inflation Rate (%) Year-over-Year Inflation Rate (%)

March 2007 50.54 2,200.20

April 2007 100.70 3,713.90

May 2007 55.40 4,530.00

June 2007 86.20 7,251.10

July 2007 31.60 7,634.80

August 2007 11.80 6,592.80

September 2007 38.70 7,982.10

October 2007 135.62 14,840.65

November 2007 131.42 26,470.78

December 2007 240.06 66,212.30

January 2008 120.83 100,580.16

February 2008 125.86 164,900.29

March 2008 281.29 417,823.13

April 2008 212.54 650,599.00

May 2008 433.40 2,233,713.43

June 2008 839.30 11,268,758.90

July 2008 2,600.24 231,150,888.87

August 2008 3,190.00 9,690,000,000.00

September 2008 12,400.00 471,000,000,000.00

October 2008 690,000,000.00 3,840,000,000,000,000,000.00

14 November 2008 79,600,000,000.00 89,700,000,000,000,000,000,000.00

Sources: Reserve Bank of Zimbabwe (2008) and Steve H. Hanke’s calculations.

The following data is from Table 2 above. The real troubles began in the last quarter of the same

year as the inflation rate rose sharply to nearly three times as much and it stayed there till almost the

end of the year. The worst part however, was after 5 months in 2008 when the inflation rate rose

steeply to more than 400%, and then doubled up the next month. In July of the same year, the

inflation broke the 1,000% mark to reach 2,600% and in August it crossed the 10,000% mark after

reaching 12,400% per month. It then further zoomed of out of control October ’08 b

than 600 million percent per month, before it touched an all time high of 79 billion percent by mid

November’08.

The following data is from Table 2 and Graph 1 above.

was already well out of control si

Inflation Rate in Saudi Arabia during the year 2007 stood at 4.1% and in 2008 at 9.9%, with the

latter also being regarded as a high

inflation rate in Zimbabwe climbed in direct proportion to the monthly inflation rate.

rate over passed the 10,000% mark in Oct’07 and at the start of the new year it had already sped

over 100,000%. It took, however, 5 months for the rate to cross the 200,000% mark, but only 2

2,200

3,714

4,530

7,251

7,635

6,593

7,982

14,841

26,471

66,212

100,580

164,900

417,823

650,599

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than 400%, and then doubled up the next month. In July of the same year, the

inflation broke the 1,000% mark to reach 2,600% and in August it crossed the 10,000% mark after

reaching 12,400% per month. It then further zoomed of out of control October ’08 b

than 600 million percent per month, before it touched an all time high of 79 billion percent by mid

The following data is from Table 2 and Graph 1 above. The annual inflation rate for Zimbabwe

out of control since March 2007 at 2200%. To allow comparison, the Annual

Inflation Rate in Saudi Arabia during the year 2007 stood at 4.1% and in 2008 at 9.9%, with the

high inflation level. The further the months progressed, the higher the

climbed in direct proportion to the monthly inflation rate.

rate over passed the 10,000% mark in Oct’07 and at the start of the new year it had already sped

over 100,000%. It took, however, 5 months for the rate to cross the 200,000% mark, but only 2

100,580

164,900

417,823

650,599

2,233,713

11,268,759

231,150,889

9.69 billion

471 billion

3.84 quintillion

Graph 1 (21 months starting from Mar '07 to Nov'08)

Year Over Year Inflation Rate (%)

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than 400%, and then doubled up the next month. In July of the same year, the

inflation broke the 1,000% mark to reach 2,600% and in August it crossed the 10,000% mark after

reaching 12,400% per month. It then further zoomed of out of control October ’08 by going more

than 600 million percent per month, before it touched an all time high of 79 billion percent by mid

The annual inflation rate for Zimbabwe

To allow comparison, the Annual

Inflation Rate in Saudi Arabia during the year 2007 stood at 4.1% and in 2008 at 9.9%, with the

The further the months progressed, the higher the

climbed in direct proportion to the monthly inflation rate. The inflation

rate over passed the 10,000% mark in Oct’07 and at the start of the new year it had already sped

over 100,000%. It took, however, 5 months for the rate to cross the 200,000% mark, but only 2

3.84 quintillion

8.97 sextillion

(21 months starting from Mar '07 to Nov'08)

Year Over Year Inflation Rate (%)

months after that to rise 10 times as much.

was since August’08 that the percentage rise in

price level had to be quoted in billions and in

October’08 it was calculated to be more than

3quintillion. The last reported percentage

available is of mid November’08 when the

inflation rate stood at 89.7sextillion, and it was

during that time that the Zimbabwean dollar

had completely vanished as it was no longer worth more tha

As already mentioned the worst consequence of hyperinflation was the total fall in the value

of Zimbabwean Dollar (Z$), so much so that the people were forced to

buy two loafs of bread or three newspapers. As a result, the government revalued the Zimbabwean

currency in August 2008 by removing 10 zeros, so that Z$10billion became Z$1. This

economists had predicted, backfired to

create further hyperinflation and forcing

the government to issue high value notes.

The highest value note in circulation was

the 100trillion dollar note (as shown in the

image on right).

Other devastating consequences of

hyperinflation included the magnified rise

in the poverty levels and severe food crises

due to very high prices of food necessities.

High inflation was also indirectly responsible for a massive cholera outbreak as medication was hard

months after that to rise 10 times as much. It

since August’08 that the percentage rise in

level had to be quoted in billions and in

October’08 it was calculated to be more than

3quintillion. The last reported percentage

available is of mid November’08 when the

lion, and it was

during that time that the Zimbabwean dollar

had completely vanished as it was no longer worth more than toilet tissue in value.

As already mentioned the worst consequence of hyperinflation was the total fall in the value

lar (Z$), so much so that the people were forced to use a Z$50billion note to

buy two loafs of bread or three newspapers. As a result, the government revalued the Zimbabwean

currency in August 2008 by removing 10 zeros, so that Z$10billion became Z$1. This

economists had predicted, backfired to

create further hyperinflation and forcing

the government to issue high value notes.

The highest value note in circulation was

the 100trillion dollar note (as shown in the

ing consequences of

hyperinflation included the magnified rise

and severe food crises

due to very high prices of food necessities.

High inflation was also indirectly responsible for a massive cholera outbreak as medication was hard

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As already mentioned the worst consequence of hyperinflation was the total fall in the value

use a Z$50billion note to

buy two loafs of bread or three newspapers. As a result, the government revalued the Zimbabwean

currency in August 2008 by removing 10 zeros, so that Z$10billion became Z$1. This strategy, as

High inflation was also indirectly responsible for a massive cholera outbreak as medication was hard

to find and too expensive to be affordable. The constant rise in prices meant that the salaries were

never enough to live with and the people were also forced into an income crisis, on top of

everything else.

As a final result, the Zimbabwean Dollar was tota

license the use of foreign currency because everyone from the street venders to branded shops now

refused to accept Zimbabwean Dollar in exchange for their merchandise.

legally used in Zimbabwe are US dollars and South African Rand.

The picture on the left shows a restaurant bill being paid in Zimbabwe Dollars and the

picture on the right shows the value of 100billion Zimbabwe Dollars

As they say, “If you want to be a billionaire, just spend a week in Zimbabwe.”

find and too expensive to be affordable. The constant rise in prices meant that the salaries were

never enough to live with and the people were also forced into an income crisis, on top of

As a final result, the Zimbabwean Dollar was totally extinct and the government was forced

license the use of foreign currency because everyone from the street venders to branded shops now

refused to accept Zimbabwean Dollar in exchange for their merchandise. The currencies now being

abwe are US dollars and South African Rand.

The picture on the left shows a restaurant bill being paid in Zimbabwe Dollars and the

picture on the right shows the value of 100billion Zimbabwe Dollars being equal to three eggs.

to be a billionaire, just spend a week in Zimbabwe.”

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find and too expensive to be affordable. The constant rise in prices meant that the salaries were

never enough to live with and the people were also forced into an income crisis, on top of

lly extinct and the government was forced

license the use of foreign currency because everyone from the street venders to branded shops now

The currencies now being

The picture on the left shows a restaurant bill being paid in Zimbabwe Dollars and the

equal to three eggs.