How long prices took to double, at the worst point.
In Germany in 1923, where the money was the mark, a loaf of bread cost 250 marks in January. By November the same loaf cost 200 billion marks. At the worst point prices doubled every 3.7 days. People call this hyperinflation. The word just means inflation so fast that money stops doing its job.
Expect a rise→Spend fast→Prices rise→Expect more
It starts with what people expect. Suppose people expect prices to double next month. Then their cash buys less every day they hold it. So they spend it the day they get it. All that fast spending pushes prices up. The rise proves them right, and they expect more.
What 100 marks buys today100
What 100 marks buys next month, if prices double50
Prices are expected to double next month. What do most people do with their cash?
Spend it now, on anything that will hold its value.
Right. Cash that halves in a month loses a little every day it is held. So it is spent on the day, and that spending is the next turn of the loop.
Save it. Prices are high.
Not yet. Saving cash that halves in a month means losing half of it. High prices are not the problem. The problem is that everyone expects them to be higher.
Wait for prices to fall.
Not yet. Nobody is waiting for that. Everyone expects a rise, and everyone expecting a rise is what makes the rise happen.
Put the loop in order. It goes round.
Tap them in the order they happen, first to last. Each tap gets a number.
Expect a rise→Spend fast→Prices rise→Expect more
Right. The last step joins the first. Once the loop is turning, nothing outside it is needed to keep it going. To stop it, people have to stop expecting the next rise.
Berlin, November 1923. Prices double every 3.7 days. Change how long you hold a 100-mark note.
What it bought on the day100
What it buys now, in day-one bread100
How long you hold it: Day 0
You are paid 100 marks. It buys 100 marks of bread.
What it bought on the day100
What it buys now, in day-one bread82.9
How long you hold it: After 1 day
One day later it buys about 83. Prices are doubling every 3.7 days.
What it bought on the day100
What it buys now, in day-one bread26.9
How long you hold it: After 1 week
A week later it buys 27. Three quarters of your pay is gone, just from holding it.
What it bought on the day100
What it buys now, in day-one bread0.4
How long you hold it: After 1 month
A month later it buys about a third of one mark's worth. Nobody in Germany in November 1923 held a note for a month.
Why did people in 1923 spend their pay within the hour?
Wages were paid daily.
Not yet. They were, often twice a day. That was a result of the loop, not its cause. Employers paid often because a week's wage held for a week bought a quarter as much.
Shops were closing.
Not yet. Shops were open and changing their prices several times a day. The rush was to buy before the next price change, not before the doors shut.
Holding it for a week lost three quarters of it.
Right. The number on the note never changed. What it bought fell every hour, and everybody could see it. So everybody spent, and the spending fed the next rise.
Move the control.
1 doubling2 times
2 doublings4 times
3 doublings8 times
4 doublings16 times
5 doublings32 times
Doubling is faster than it sounds. Two doublings is four times. Three is eight times. Five is thirty-two times. Ten doublings is about a thousand times. When prices double every few days, one month is enough to make a loaf cost hundreds of times more.
Days in the month30 days
Days for prices to double3.7 days
Prices double every 3.7 days. How many times do they double in a thirty-day month? Round to a whole number.
doublings
Divide the days in the month by the days it takes to double.
Right. Eight doublings is 256 times. A loaf at 100 marks on the first of the month cost about 25,600 by the end of it. That was Germany in the autumn of 1923, and it was not the worst case there has been.
Hungary, 1946: prices doubled every fifteen hours. A loaf costs 100 on Monday morning. What does it cost the next Monday?
Pick one. Nothing is scored.
Monday morning100
The next Monday235,000
The same loaf, one week apart.
About 200,000.Eleven doublings in a week, about 2,300 times. That summer Hungary printed the largest banknote ever issued: a hundred million billion pengő, Hungary's money then. On the day it came out it was worth about twenty US cents.
The target2%
UK inflation, October 202211.1%
Central banks fight this loop long before prices double. The Bank of England has a target of 2% inflation a year. If inflation strays too far from it, the Governor, who runs the Bank, must write a public letter to the Chancellor, the minister in charge of the government's money, saying what went wrong and what it will do.
The Bank of England's target is 2%. Slide the marker to the inflation rate at which the Governor must write that public letter.
Slide the marker to where you think the answer is, then press Lock. Nothing is scored.
1
your guess · 0%
the answer · 3%
0%7.5%15%
1The target2%
Your guess: —
One point above the target, and the explaining starts. Most guesses sit far higher, because 3% does not feel like an emergency. The bank fights at 3% because at 30% everyone already expects the next rise, and by then a rate change is too small to change their minds.
Printing stops→New money people trust→Nobody expects a rise→Prices steady
The loop ends when people stop expecting the next rise. Germany ended it in late 1923 with a new currency, a new kind of money, that people trusted, and prices steadied within weeks. Zimbabwe ended it in 2009 by letting people use US dollars. In both places the printing of money to pay the government's bills stopped.
Which of these feed the loop, and which slow it?
One card at a time. Tap the pile it belongs to.
Card 1 of 6
The central bank prints money to pay the government's bills
People rush to buy goods the day they are paid
Shops change their prices twice a day
A new currency that people believe will hold its value
The government stops printing to cover its spending
Prices set in a foreign currency people trust
The central bank prints money to pay the government's bills → Feeds the loop
Not yet. This feeds the loop. More pounds and the same goods means the next price rise comes sooner.
People rush to buy goods the day they are paid → Feeds the loop
Not yet. This feeds the loop. Rushing to spend says everyone expects prices to be higher tomorrow, and shops raise them to match.
Shops change their prices twice a day → Feeds the loop
Not yet. This feeds the loop. A price changed twice a day tells everyone the next rise is hours away.
A new currency that people believe will hold its value → Slows it
Not yet. This slows the loop. If people believe the new money will hold its value, they stop rushing to spend, and prices stop being pushed up.
The government stops printing to cover its spending → Slows it
Not yet. This slows the loop. Without new pounds being printed, there is no new money to spend on the goods.
Prices set in a foreign currency people trust → Slows it
Not yet. This slows the loop. A price in dollars is a price nobody expects to double by Friday, so the rush stops.
Printing to pay the government's billsfeeds the loop
vsvs
A currency people believe inslows it
Right. Everything that feeds the loop makes people expect the next rise sooner. Everything that slows it gives people a reason to believe the rises have stopped. Germany used a new mark that people trusted. Zimbabwe let people use dollars.
Lesson complete
Runaway inflation is a loop of expecting more. It ends when people believe it has ended.