Zimbabwe inflation is so dramatic that the Zimbabwean government has even produced a one-million dollar bill!
Zimbabwe inflation has topped 1 million percent, a far and nostalgic cry from the healthy annual inflation rate of 3-5 percent. Healthy? Does that mean inflation is good? As surprising as it may be, a low,controlled rate of inflation is beneficial for the economy. The economy is measured annually by its gross domestic product (GDP) - the total market value of final goods and services produced domestically.
The economy only moves forward with the increase and development of GDP which occurs through consumption by households. Naturally, as the households demands more goods and services, firms will respond by producing more of the demanded goods and services but at the same time, firms will increase the price because households are willing to pay more to buy more. As a result, inflation occurs.
Inflation occurred because consumers consumed more of a given good and service, thus pushing the economy forward. But how does inflation at 1 million percent happen?
Zimbabwe is experiencing hyperinflation – inflation that is out of control. While altering supply and demand by firms and households affects inflation, the main cause for hyperinflation is due to a substantial and rapid increase in the amount of money in the economy. When money is printed and injected into society, dollar bills are more common and thus the value of each bill diminishes. As a result, firms will demand more money for their products because while the value of money decreased, the value of the good and service hasn’t changed - immediately causing a high rate of inflation.
So why doesn’t Zimbabwe simply stop printing money? There is also a matter of government spending – the government must supply the basic necessities such as food and water for Zimbabwe’s army. Since Zimbabwe has a crisis at hand, militia must be fueled and ready for combat. In other countries where inflation is not an issue, government spending would include public fireworks, lighthouses, environmental benefits, etc. With the rapid increase in prices and the scarcity of money in Zimbabwe, the Zimbabwe government has no option but to continuously print billions of dollars for their own use, driving inflation to hyperinflation.
To put this into perspective: in Hong Kong, as weeks and months go by, the price of a twist cone in McDonald’s won’t change. In a few years, the price might increase by a couple cents. Not so in Zimbabwe today.
A sample scenario: Let’s assume a mother would like to buy some vegetables for a family dinner. She would enter a supermarket, only to realize the price is too exorbitantly high, which leads her to try another one. However, upon realizing that the prices in the second supermarket are even higher, she’d return to the first one, only to be dismayed to find out that…whoa! The price for that bag of chips in the first supermarket has nearly doubled in a matter of minutes.
With inflation occurring by the hour, people who earn income must act immediately. In May 2008, 100 million Zimbabwe dollars was worth 30 U.S cents, and that exchange rate was changing every hour. A 30-year-old man lucky enough to have a job would be rushing to the currency exchange counter immediately after receiving his salary. He had no time to lose; the value of the money he was holding in his hand was depreciating by the hour.
Zimbabwe has been experiencing hyperinflation since the early 21st century; it has reached a point where it can no longer be controlled. Zimbabwe’s currency will continue to depreciate until it is no longer demanded. Perhaps we must wait until this time until Zimbabwe’s conditions will improve.
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