Janet Yellen and the FED raised the rates and its expected to see them raise the rates at least a couple of times before the end of this year. In addition; they are planning to raise the rates three times next year. Wow. What about the inflation? Let`s take a look at Japan, Venezuela and Zimbabwe.
Nikkei reach its all-time high on December 29th 1989. The stock market plummeted and did never come back. Japan started to grow after world war II and was among the first in the world to use robots in the 70s and 80s.
Japan used robots especially in the auto and techno industry. The optimism went to be a huge euphoria og Nikkei reached 38.957.44 and ended the day at 38.915.87 on December 29th 1989. As you may know; Japan started to «print» money. But what happened to the inflation?
As you can see from the chart above, Japans inflation increased the early 90s and then it started to decline again. You can see from the chart that it went up again in the late 90`s, but not for a long time. It drops every time it goes up.
Consumer prices increased 0,4 percent YoY in January this year. Transportation cost posted the first annual gain since March of 2015 and prices went up faster for clothing and footwear and recreation and culture.
Inflation rate reached an all-time high of 24,9 percent in February of 1974 and a record low of -2,5 percent in October of 2009. It`s a different and more scary story in Venezuela.
It`s not getting better in Venezuela and it goes from bad to extremely bad right now. What in the world is going on? Venezuela has the highest inflation rate in the world right now. Economic turmoil in Venezuela has made the bolivar go straight up to heaven.
Some analysts say it could reach 2000 percent in 2017. No, I`m not kidding; 2000 percent. President Nicolàs Maduro who is elected after the death of socialist firebrand Hugo Chàvez explained the shock move by accusing US-backed «mafias» of conspiring to destabilize his country’s economy by hoarding bank notes.
Take a good look at the chart above. Consumer prices in Venezuela jumped 800 percent YoY in 2016, following a 180,9 percent rise in 2015. It is the highest inflation rate on record after the slump in oil prices led to a severe recession and food shortages.
Venezuela reached an all-time high of 800 percent in December of 2016 and a record low of 3,22 percent in February of 1973. You think 800 percent is much? Take a look at Zimbabwe.
The worst of the inflation occurred in 2008, leading to the abandonment of the currency. The peak month of hyperinflation occurred in mid-November 2008 with a rate estimated at 79,600,000% per month. That is what I call hyper-inflation.
This resulted in US$1 becoming equivalent to the staggering sum of Z$2,621,228. The rate went up 585,84 percent in 2005. 1,281,11 percent in 2006 and 66,212,3 percent in 2007. And then it exploded; Up 231,150,888,87 percent in July of 2008. Wow.
Hyper-inflation like that mean that the price can jump when you are sitting on the bus. That can be problematic for some customers but also for business owners.
Any Zimbabwean dollars acquired needed to be exchanged for foreign currency on the parallel market immediately, or the holder would suffer a significant loss of value.
For example, a mini-bus driver charged riders in Zimbabwean dollars, but different rates throughout the day. The evening commute was highest-priced. He sometimes exchanged money three times a day, not in banks but in back office rooms and parking lots.
Lack of confidence in government to practice fiscal restraint feeds on itself. In Zimbabwe, neither the issuance of banknotes of higher denominations nor proclamation of new currency regimes led holders of the currency to expect that the new money would be more stable than the old.
Remedies announced by the government never included a believable basis for monetary stability. Thus, one reason the currency continued to lose value, causing hyperinflation, is that so many people expected it to.
What about a hyper-inflation in the U.S? Is it possible? What can go wrong, and what will happen? I will write more about that later on this week.
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Ket Garden
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