Inflation and hyperinflation – what they are, what they are not
Inflation is an increase of the amount of money in circulation. Hyperinflation is simply very high inflation, which usually occurs at the last stage of fiduciary currency. Just before the collapse of paper money, there is most frequently a period of a highly dynamic growth of the amount of money in circulation. Consequently, it leads to an equally sharp rise in prices because a greater amount of money follows the same amount of goods. In a nutshell, newly issued money does not have cover in real goods. It has become customary to think that hyperinflation starts when prices increase by at least 50% in one month. On the other hand, we can talk about high inflation when the growth of money amount reaches the rate of 5% in a year.
Historically, gold was the best measure of inflation. Today the gold ore is also treated as the only currency that has no counterparty risk and that is why it was used in this study as an objective measure of inflation.