HYPERINFLATION IN ZIMBABWE
During World War II, you could buy a loaf of bread for $0.15, a new car for less than $1,000and an average house for around $5,000. In the twenty-first century, bread, cars, houses and justabout everything else cost more. what is it and what causes this??
Inflation is defined as a sustained increase in the general level of prices for goods and services. Itis measured as an annual percentage increase. As inflation rises, every dollar you own buys asmaller percentage of a good or service. The value of a dollar does not stay constant when thereis inflation. The value of a dollar is observed in terms of purchasing power, which is the real,tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. According to Prof. Crowther, ³Inflation is a state in which the value of moneyis falling and prices are rising.´ According to Prof. Kemmerer, ³Inflation means too muchcurrency in comparison to the physical volume of business done´. Keynes stated that ³the rise inthe price level after the point of full employment is true Inflation.´
Types of Inflation
Inflation caused by increases in aggregate demand due to increased private andgovernment spending, etc. Demand inflation is constructive to a faster rate of economicgrowth since the excess demand and favorable market conditions will stimulateinvestment and expansion. The failing value of money, however, may encouragespending rather than saving and so reduce the funds available for investment.
Presently termed "supply shock inflation," caused by drops in aggregate supply due toincreased prices of inputs, for example. Take for instance a sudden decrease in the supplyof oil, which would increase oil prices. Producers for whom oil is a part of their costscould then pass this on to consumers in the form of increased prices.
Induced by adaptive expectations, often linked to the "price/wage spiral" because itinvolves workers trying to keep their wages up (gross wages have to increase above theCPI rate to net to CPI afterítax) with prices and then employers passing higher costs onto consumers as higher prices as part of a "vicious circle." Builtíin inflation reflectsevents in the past, and so might be seen as hangover inflation.
It occurs whenever businesses in general decide to boost their prices to increase their profit margins. This does not occur normally in recessions but when the economy is booming and sales are strong. It might be called oligopolistic inflation, because it isoligopolies that have the power to set their own prices and raise them when they decide