Source: Jon Miltimore
Inflation has been in the news a lot lately. The massive money pumping the Federal Reserve began in 2020 has finally got people’s attention, and is no longer a topic for just economists and free-market advocates.
CNN last week reported that price increases recently hit a three-decade high and 25 percent of Americans say their standard of living has fallen. Speaking on CNBC’s “Squawk Box,” Home Depot founder Ken Langone noted that “inflation is a regressive tax [that] hits poor people hardest.” On CNBC’s sister network, MSNBC, host Joy Reid noted that “unless you’ve been living under a rock your money isn’t going as far as it used to, with higher prices on gas, food, and your energy bills.”
Even the late-night comedy show hosts are talking about inflation.
“Right now inflation is the one thing people hate even more than Jake Gyllenhaal,” Daily Show host Trevor Noah quipped. “It seems like everything is more expensive these days. Groceries are more expensive. Cars are more expensive.”
Noah wasn’t done.
“I went to a gas station today,” Noah joked, “and for a gallon of regular, it just said ‘kill yourself.’”
Inflation: How Worried Should We Be?
Most people understand what inflation is, but in case you don’t, let’s define it. Inflation is essentially an increase in the supply of money. That’s basically it, and this was the standard definition of inflation for centuries, economist Joseph Salerno notes. Economists later added a second definition describing inflation as “a general and sustained increase in prices.”
Polls show Americans are quite worried about these “sustained price increases.” As FiveThirtyEight recently observed, some surveys show 87 percent of registered voters are “very” or “extremely” concerned about inflation.
Some are less worried. MSNBC’s Stephanie Ruhel recently said the “dirty little secret” was that Americans can afford inflation.
“You’ve got the families of over 60 million kids on average getting $430 a month. For people on fixed incomes, older people on social security, they’re getting those fixed payments adjusted next year up 5.9 percent or inflation. And the dirty little secret here, Willie, while nobody likes to pay more, on average we have the money to do so. Household savings hit a record high over the pandemic. We didn’t have anywhere to go out and spend. And as we said a moment ago, we’re expecting retail sales this holiday season to break records. For those who own their homes and the value of our homes are up. And while the stock market isn’t the economy, you have over half of the American households with some investment in the markets, and the markets have hit record highs.”
Ruhel isn’t wrong that inflation impacts some more than others. Homeowners and Americans invested in other assets—stocks, land, cryptocurrencies, gold, and other commodities—tend to be shielded to a degree from the most pernicious effects of inflation. But this only accentuates the truth that inflation falls hardest on lower-income Americans who rely more heavily on cash.
Importantly, history teaches us something else about inflation: it can accelerate very fast.
Hyperinflation Starts as Inflation
We’ve already tackled the definition of inflation. So what’s hyperinflation?
Hyperinflation is essentially rapid inflation. Technically, it’s inflation that exceeds a 50 percent growth for a month. While there’s some talk among highly influential people that hyperinflation “is happening,” the reality is that the US is nowhere near hyperinflation right now. Inflation may have hit a 31-year high in October, but the 6.2 percent annualized rate is still far below hyperinflation.
However, it’s also important to understand that hyperinflation is always preceded by regulation inflation. This of course doesn’t mean inflation always leads to hyperinflation, just that inflation can lead to hyperinflation if the money supply continues to expand.
One of the most famous examples of hyperinflation happened in Germany during the Weimar era. Many of us have seen the images of women carrying laundry baskets full of marks to buy bread or rooms plastered with useless money.