Hyperinflation in Russia in 1990 - Essay Example

Before embarking on the main study, it is of importance to have a look at the meaning of the expression “hyperinflation”. Generally, inflation refers to a scenario where there is a sustained rise in the general levels of prices. Therefore, according to Salemi in his article, hyperinflation basically refers to the very high levels of inflation. Economists usually use the term ‘hyperinflation’ in situations of more than 50% inflation per month.

At this rate of inflation of 50%, it fundamentally means that an item costing USD 10 on the 1st of January in the current year would cost USD 1300 on the 1st of January the coming year. (Salemi, 2008). Some of the types of inflation that can be explained using graphical illustrations are; cost-push inflation and demand-pull inflation. Cost-push inflation happens when there is a rise in production costs for firms, which leads to a total supply shift towards the left. This is usually a type of inflation resulting from rising commodity and energy prices.

From the graph, if the change in prices from P1-P2 would reflect a percentage higher than 50% per month, thus this would be interpreted as a situation of hyperinflation. Demand-pull inflation, on the other hand, results when aggregate levels of demand rise faster than the aggregate supply levels. This occurs when the economy of a country grows at a higher rate than the long-term trend of levels of growth. Where demand is higher than supply, firms will react by raising the levels of prices. Also in this scenario, if the price levels rise from P1 to P2 would exceed 50% in terms of percentage change per month; this would mean a situation of hyperinflation.

(Moffatt, 2011). In the year 1992, the rate of inflation in Russia was 1,528.7%. Though this figure may not be very precise, since the IMF (International Monetary Funds) started reporting about the rates of inflation in Russia in 1993, it reflects a very high rate. The other member nations to the former Soviet Union also experience a similar ordeal. Events of the high inflation rates reported in 1992, set in when the government liberalized price controls of many commodities in the retail sale and wholesale alike.