What are the risks and dangers of hyperinflation, and how does it affect individuals, businesses, and the economy as a whole?
Answer (1)
Hyperinflation is a situation where prices increase at a rate of more than 100% per year, and often much more. This means the value of money drops so fast that what costs ₱100 today might cost ₱200 or even ₱1,000 next week. This is one of the worst things that can happen to a country’s economy because it destroys the usefulness of money.For individuals, hyperinflation means they lose purchasing power very quickly. A worker may get paid ₱10,000 per month, but by the time they use the money, prices may have doubled. This leads to panic buying. People try to spend money as fast as possible because saving becomes useless. In countries like Venezuela or Zimbabwe, this led to citizens carrying bags of money just to buy basic goods.For businesses, hyperinflation makes it nearly impossible to plan. If the price of raw materials changes every day, how can you set a price for your product? Also, customers may stop buying because they can no longer afford anything. This results in losses, shutdowns, and layoffs.In the Philippine context, while the country has never experienced hyperinflation, we have had episodes of high inflation. For example, in 2018, inflation spiked to around 6.7% due to rising fuel and food prices. Some vendors in wet markets had to change their price tags almost daily, which caused complaints from customers.Imagine if instead of 6.7%, inflation was at 500%. That would mean a kilo of rice today at ₱50 could cost ₱250 next month. People would stop trusting the peso, and might trade in goods or foreign currency instead. This would collapse the banking system, destroy pensions, and make salaries useless.Hyperinflation often happens when a country prints too much money to pay off debt or finance government spending. Once it starts, it’s hard to stop without strong and painful policies.
