What is hyperinflation
Hyperinflation is inflation so fast and out of control that money loses most of its value within months, and people stop trusting it to hold value.
Ordinary inflation means prices rise gradually. In hyperinflation the rise speeds up and feeds on itself. People spend money as soon as they get it, shops reprice constantly, and wages and savings in the local currency lose their purchasing power quickly.
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A worked example (hypothetical)
Take a fictional country and a worker whose salary is fixed in the local currency.
- Start of the year: the monthly salary buys a full basket of groceries.
- Prices rise by a large share every month. Each rise applies to prices that have already gone up, so the increases compound. They do not simply add up.
- A few months later: the same salary buys only part of the basket.
- By year end: the salary buys only a small fraction of the basket. The price level is many times higher than at the start.
The key point is compounding. A steady monthly rate produces a much larger yearly figure than you would get by adding the monthly rates together. When the monthly rate itself keeps increasing, the yearly figure grows even faster.
Formal definition and edge cases
- Economists' threshold: the classic academic definition, from economist Phillip Cagan, sets a very high monthly inflation threshold. A period counts as hyperinflation once monthly inflation passes that level and ends after it falls back below it for a sustained time.
- Accounting definition: the international accounting standard on hyperinflationary economies relies on several indicators rather than a single trigger. These include very high cumulative inflation over recent years, people holding wealth in foreign currency or goods, and prices quoted in a foreign currency.
- Edge cases: very high but stable inflation is not always labelled hyperinflation. Official figures may also understate it when price controls or a fixed exchange rate hide the real rise.
Historical hyperinflation examples include Weimar Germany, post-war Hungary, Zimbabwe and Venezuela. Common causes in these cases were large fiscal deficits financed by printing money, a collapse in output, and a loss of trust in the currency.
Where the term appears
- Central bank reports: monetary policy statements discuss inflation risks and the policy rate. An example is the State Bank of Pakistan decision: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC).
- News and fundamental analysis: articles about emerging-market currencies, debt crises and IMF programmes. See fundamental analysis.
- Trading platforms: CFDs on currencies of high-inflation economies often show wide spreads, large swaps and sharp gaps. People also discuss gold and the dollar as stores of value in this context.
Leveraged forex and CFD trading can lose money fast, and a hyperinflation story does not make any price move predictable. Note also the position on offshore platforms: per the SBP, remitting foreign exchange to overseas forex/margin/CFD platforms is not allowed through any payment channel (FERA s.5(1)). See regulation and safety and risk management.
Related terms
- Deflation and disinflation
- Currency depreciation and devaluation and revaluation
- Dollarization and currency board
- Fiat money and fiscal deficit
- Debt-to-GDP ratio and currency risk
- Basis point, and more in the trading glossary
Frequent questions
What is hyperinflation in simple words?
Prices rise so quickly that money loses most of its value within months.
How is hyperinflation different from high inflation?
It is a matter of speed and loss of trust. Hyperinflation passes a very high monthly threshold, and people start avoiding the currency altogether.
What usually causes hyperinflation?
Usually a government finances large deficits by creating money, often combined with falling output and a collapse in confidence.
How does hyperinflation usually end?
Typically through a currency reform, a new or pegged currency, fiscal tightening, or the economy adopting a foreign currency.