Chronic inflation
Chronic inflation is an economic phenomenon occurring when a country experiences high inflation for a prolonged period (several years or decades) due to continual increases in the money supply among other things. In countries with chronic inflation, inflation expectations become 'built-in', and it becomes extremely difficult to reduce the inflation rate because the process of reducing i
Overview
Chronic inflation is an economic phenomenon occurring when a country experiences high inflation for a prolonged period (several years or decades) due to continual increases in the money supply among other things. In countries with chronic inflation, inflation expectations become 'built-in', and it becomes extremely difficult to reduce the inflation rate because the process of reducing inflation by, for example, slowing down the growth rate of the money supply, will often lead to high unemployment until inflationary expectations have adjusted to the new situation. Chronic inflation is distinct from hyperinflation.
Occurrence
Even more so than hyperinflation, chronic inflation is a 20th-century phenomenon, being first observed by Felipe Pazos in 1972. High inflation can only be sustained with unbacked paper currencies over long periods, and before World War II unbacked paper currencies were rare except in countries affected by war – which often produced extremely high inflation but never for more than a few years. Most economists believe chronic inflation first emerged in Latin America following World War II, with the result that it was originally called "Latin inflation". Some economists, however, argue that the experience of France in the 1920s was the first case of chronic inflation. Japan (see below) in the years surrounding World War II is another case with characteristics very akin to well-studied cases of chronic inflation.
Causes
Monetarists state that chronic inflation is caused by chronic growth of the money supply, a position that is accepted by most mainstream economists. This paragraph describes reasons for persistent monetary growth. In the 1960s and 1970s, chronic inflation was attributed to powerful political group interests with radically divergent policy demands; the power of labour unions to demand high wages for workers, often in obsolete economic sectors, conflicted with the somewhat feudal political structures of the affected countries. Under these conditions, a return to a commodity money that would curb inflation quickly is politically suicidal, so governments of countries affected by chronic inflation have invariably had to resort to more subtle methods of reducing inflation, such as central bank reforms or indexing price and wage levels to the future value of money. This, however, leads to "inflation inertia" and ultimately to a public that becomes skeptical of attempts to reduce inflation: unlike hyperinflation, history has shown that communities can live with moderate chronic inflation relatively easily. Other sources have argued that chronic inflation is caused by governments seeking to optimize seignorage taxes in order to pay most efficiently for public programmes, or because the societies in which it developed have consistently imported more than they can export and their currencies have had to devalue constantly to make their imports more expensive without elasticity being sufficient to reduce demand. Along the same lines, there have also been arguments for demographic causes of chronic inflation as resulting from populations growing more rapidly than production in developing nations from the 1950s to the 1980s, and until today in sub-Saharan Africa. Increasingly it is also thought that environmental or ecological stresses and disasters can trigger a period of systemic inflation by governments unable to effectively handle the situation.
Argentina
The Argentine economy has a long history of experiencing trouble with prolonged high inflation rates. In 1989, Argentina experienced a hyperinflation crisis as a result of bad economic policies, which led to an inflation rate of 257%. The hyperinflation crisis caused protests, riots, looting and a general decline of the government popularity among the public. This hyperinflation crisis had also taken place in the middle of the presidential elections, which led to the governing party to lose the elections. During the 1990s, thanks to the convertibility plan, which pegged the austral (and, afterward, the peso) to the United States Dollar value, inflation rates decreased nearly to 0%. These policies ended with a catastrophic economic crisis in 2001. During the 21st century, Argentina didn't experience real inflationary troubles until 2007, which saw a rise in inflation rates. During Cristina Kirchner's government, inflation rates were at an all-time high, with the highest inflation rates experienced in 2013, which saw a rise of the inflation rate to 30% to 40%. This was compensated, albeit partly, with high purchasing power and subsidization, the latter increasing the fiscal deficit. In December 2015, Mauricio Macri assumed the presidency of the nation, with a 40% inflation from Cristina Kirchner's presidency. When 2016 ended, inflation was in a recent of 42%. The Argentine Ministry of Economy had put in action a project that claimed to reduce inflation from 40% to 20% (+/- 2%) in 2017, to 10% (+/- 2%) in 2018 and to 5% (+/- 1%) in 2019. The project initially led to 24% inflation in 2017, but it did not work in 2018, with an inflation rate of 47.6%, and in 2019, inflation was 53%.
Bulgaria
In 1996, the Bulgarian economy collapsed due to the slow and mismanaged economic reforms of several governments in a row, shortages of wheat, and an unstable and decentralized banking system, which led to an inflation rate of 311% and the collapse of the lev, with the exchange rate to dollars reaching 3000. When pro-reform forces came into power in the spring 1997, an ambitious economic reform package, including introduction of a currency board regime and pegging the Bulgarian Lev to the German Deutsche Mark (and subsequently to the euro), was agreed to with the International Monetary Fund and the World Bank, and the economy began to stabilize.
Chile
Chile had prolonged inflation for the greater part of the twentieth century. Inflation first became persistent at the tail end of the 1930s as the government began a process of import substitution, rising steady to 84 percent in 1955. After slowing in the late 1950s, inflation rose again under Allende and peaked anywhere between 500% and 1,000% in late 1973 (which some consider hyperinflation, though the monthly inflation rate reached 30% for a single month). A 1973 coup d'état deposed Allende and installed a military government led by Augusto Pinochet. Pinochet's free-market economic policy gradually ended chronic inflation, which stabilised in single figures for the first time in forty-five years. Overall impact of chronic inflation: 1 current peso = 1,000,000 pre-1960 pesos.
Guinea
Guinea has seen year on year inflation rates hover well above 50% since the late 1990s, though many months have seen much lower levels in the single digits. In Guinea the normal drivers of inflation are food supply and distribution, and global commodity prices. Political instability has also contributed greatly to the fall in the Guinean franc's value in recent years due to a series of coups following the ouster of longtime military strongman Lansana Conté and mass protests. Some government mitigation policies and economic growth have progressively stabilized inflation rates which reached their peak in July 2005 at 42.6% for the month to a current average of 9.7% per month. On 21 July 2010, Yahoo! Finance quoted the rate as 5,050 GNF to 1 USD. As of 17 January 2020, the exchange rate was 7,023 GNF to 1 USD.
Israel
Inflation accelerated in the 1970s, rising steadily from 13% in 1971 to 111% in 1979. From 133% in 1980, it leaped to 191% in 1983 and then to 445% in 1984, threatening to become a four-digit figure within a year or two. In 1985 Israel froze most prices by law and enacted other measures as part of an economic stabilization plan. That same year, inflation more than halved, to 185%. Within a few months, the authorities began to lift the price freeze on some items; in other cases it took almost a year. By 1986, inflation was down to 19%.
Iraq
Years of constant war and rebuilding resulted in large amounts of government spending, with international sanctions creating shortages and limits on borrowing. Between 1987 and 1995 the Iraqi Dinar went from an official value of 0.306 Dinars/USD (or US$3.26 per dinar; the black market rate is thought to have been substantially fewer dinars per dollar) to 3000 Dinars/USD due to government loss of their Swiss printing press and the printing of inferior quality notes. This equates to approximately 315% inflation per year averaged over that eight-year period.
Japan
As Hirohito prepared for war to gain access to rubber and mineral resources, Japan began experiencing steady inflation from 1934. By the end of 1949, retail prices were more than 150 times their level in 1939, and the highest denomination was a 75,000,000,000 Yen bank cheque. The Japan wholesale price index (relative to 1 as the average of 1930) shot up to 16.3 in 1943, 127.9 in 1948 and 342.5 in 1951. In the early 1950s, after the end of US military occupation, Japan controlled its own money. Through its rapidly growing export trade, Japan stabilized the yen quickly.
Laos
Starting in the late 1980s financial aid and trade with the USSR greatly decreased, which began a two-decade long period of high inflation that began to accelerate by 1996 with the East Asian financial crisis which had severely impacted Laos, burdened with large amounts of foreign debt coupled with very slow growth. By January 1998 inflation had reached 100% a month and did not dip below that level again until late 1999, after it had peaked well above 167%. For a short time the Lao kip gained the less than respected title of being "least valued currency unit." Although the kip has officially returned to lower inflation levels the local inflation rates remain much higher, spurred on by rising food and import prices. The emergence of a new debt crisis in 2013 has brought more uncertainty.
Madagascar
The Malagasy franc (iraimbilanja) had a turbulent time in 2004, losing nearly half its value and sparking rampant inflation. On 1 January 2005, the ariary, worth five francs, became the main currency unit in Madagascar. In May 2005, there were riots over rising inflation. Disinflation calmed the situation from 2005 to 2008, but riots ensued in 2009 as prices continued to rise.
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