What Is Hyperinflation? How It Works and Why It’s So Dangerous

Imagine waking up to find that everything has doubled in price overnight. A $50 tank of gas now costs $100. Your $1,500 rent jumps to $3,000. And your paycheck buys half of what it did last month. Meanwhile, stores run out of essentials as people scramble to stock up before prices climb even higher. Banks collapse, and money becomes practically worthless.

But should you be worried about hyperinflation today? Here’s what hyperinflation is and how to protect your finances from inflation risks.

Table of Contents

1. Hyperinflation vs. high inflation vs. normal inflation
2. What causes hyperinflation?
3. What happens when prices spiral out of control?
4. Historical examples
5. Should we be worried about hyperinflation in 2025?
6. Practical ways to protect your finances from inflation
7. FAQ

Hyperinflation vs. high inflation vs. normal inflation

Hyperinflation is an extreme form of inflation characterized by price increases exceeding 50% per month. For instance, something that costs $10 in January could cost $25 by March and $115 by July—just six months later.

For comparison:

• Normal inflation is when prices rise slowly over time, typically 2% per year in a healthy economy.
• High inflation rises faster than normal, and it starts to erode purchasing power.
• Hyperinflation occurs when prices rise so quickly (typically 50% or more in one month) that money becomes useless.

Hyperinflation makes everyday life chaotic. People spend their paychecks immediately before their money loses more value. Businesses struggle to set prices because costs change so fast. And eventually, entire economies collapse because the local currency is worthless.

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Example:

Imagine going to the grocery store and seeing milk priced at $4 on Monday, $6 on Wednesday, and $12 by Friday. You might rush to buy as much as possible before it gets even worse. This creates a panic loop that drives prices even higher.

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What causes hyperinflation?

Hyperinflation usually happens for two reasons: printing too much money and demand growing faster than supply.

The first cause is typically when a government creates new money to cover spending. If the economy isn’t growing fast enough to support that extra money, the value of the currency drops, and prices start rising in a hurry.

The second cause is demand-pull inflation. It occurs when people buy more than what’s available (often due to increased consumer spending, rising exports, or government programs). If people expect prices to keep climbing, they might buy even more to get ahead of them. This further drives demand, exacerbating the problem.

In many cases, both of these causes happen at once, and it spirals into full-blown hyperinflation.

What happens when prices spiral out of control?

Hyperinflation is almost always a self-perpetuating cycle. Once it starts, it’s hard to stop. So what happens when prices spiral out of control?

• Wages can’t keep up. Even if salaries rise, they never increase fast enough to match skyrocketing prices. People struggle to afford basics like food, rent, and medical care.
• Savings become worthless. A retirement fund that could once float you for the next decade or longer might not even cover a month’s worth of expenses. People rush to spend their money before prices rise even further.
• Hoarding and shortages. When people fear prices will keep rising, they stockpile essentials. This leads to empty shelves and widespread shortages. (Think back to the toilet paper panic of 2020, except much worse.)

Historical examples of hyperinflation 

Hyperinflation is rare. But when it happens, it can upend entire economies. Here are three of the most infamous examples:

Germany in 1923

After World War I, Germany owed massive reparations. Instead of raising taxes, the government printed way more money. 

Prices for some goods doubled every few days. By the end of 1923, a single U.S. dollar was worth more than 4 trillion German marks. People raced to spend their wages before they lost value. Some even burned bills to stay warm because it was cheaper than buying firewood.

Zimbabwe in the 2000s

Zimbabwe’s government printed excess money to pay off debt and support spending, which triggered hyperinflation. 

At its peak, prices doubled every 24 hours. Shoppers needed 550 million Zimbabwean dollars to buy a loaf of bread. Zimbabwe abandoned its currency entirely in 2009, adopting foreign currencies such as the U.S. dollar.

Venezuela in the 2010s

Falling oil prices, strict price controls, and excessive money printing led Venezuela into a years-long crisis. By 2018, annual inflation reached 80,000% and peaked in 2019 at 344,509.50%. Shelves emptied, wages collapsed, and millions fled the country. 

Even today, many Venezuelans earn the equivalent of just a few U.S. dollars a month and rely on foreign currency to survive.

Should we be worried about hyperinflation in 2025?

Hyperinflation is scary to think about. But the chances of it happening in the U.S. are extremely low.

The only time the United States has ever experienced true hyperinflation was during the Civil War, when the Confederacy printed too much money to fund its war effort. Since then, inflation has had its highs and lows, but it’s never reached the runaway levels seen in countries like Zimbabwe or Venezuela.

That’s because the U.S. has something those countries didn’t: a strong central bank. The Federal Reserve (aka “the Fed”) manages inflation by adjusting interest rates and controlling how much money flows into the economy. It also sets an inflation target (usually around 2%) and takes action when prices rise too fast.

Hyperinflation typically occurs when a country prints money without restraint, and people lose faith in its currency. However, the U.S. dollar remains one of the most trusted currencies in the world, which makes a significant difference.

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Takeaway:

Although high inflation is a concern, hyperinflation is likely not. The Fed has tools to keep inflation in check, and the U.S. economy has proven (so far) to be resilient enough to prevent total collapse.

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Even though hyperinflation isn’t a large concern in the U.S., inflation is inevitable and something we should always incorporate into our plans. Prices are always going to be rising, and sometimes wages don’t keep up at the same pace.

That’s why it’s so important to save first and focus on paying down what debt you may already have instead of looking at how much you can afford for a new car or bigger house. When you put these financially healthy habits at the forefront, it’s much easier to adapt when things change.

Practical ways to protect your finances from inflation

Even if hyperinflation isn’t likely, inflation can still hurt your spending power. Here’s how to keep your money working for you in an inflationary environment:

1. Keep an emergency fund—but not too much cash

Savings accounts lose value over time. If inflation is 5%, and your savings earn 0.5% interest, your money is actually losing value. You can combat this using these tips: 

• Use a high-yield savings account (HYSA): These accounts earn better interest than standard savings accounts—usually 3% or more.
• Don’t keep all your money in cash: Once you have three to six months of expenses saved, invest the rest in assets that outpace inflation.

2. Own assets that rise with inflation

Some investments perform well when inflation is high:

• Stocks: Many companies raise prices to match inflation. This could potentially increase their profits (and stock value).
• Real estate: In 2022, housing inflation caused prices to jump over 20% in one year, according to the CFPB. If you already own property, that kind of growth can quickly increase your home equity.
• Treasury Inflation-Protected Securities (TIPS): TIPS are government bonds that adjust for inflation to help your money retain its value. They are one of many inflation-proof investments you could add to your portfolio. 
• Gold and commodities: Precious metals like gold could hedge against inflation if the dollar weakens. Some people use a gold IRA to buy precious metals. Companies such as American Hartford Gold specialize in helping investors open a gold IRA or purchase gold and silver directly, making it easier to add inflation-resistant assets to your portfolio.

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Example:

If you had $10,000 in cash in 2020 and didn’t invest it, inflation would’ve reduced its value to about $8,085 by 2025. However, if you had invested it in the stock market, it could have grown in value instead of shrinking.

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3. Pay off high-interest debt

As interest rates rise, credit cards and variable-rate loans become more expensive. Prioritize paying off high-interest debt now to avoid higher costs later.

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Example:

If you have a credit card with a 20% interest rate, and inflation causes rates to increase to 35%, your debt will become even more challenging to manage. Paying it off now will save you money in the long run.

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4. Increase your income

Inflation means everything costs more, so earning more is one of the best ways to keep up:

• Ask for a raise at your current job.
• Pick up freelance work or a side hustle to help offset rising costs.
• Invest in new skills like certifications or training to help you qualify for higher-paying jobs.

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Example:

If inflation is 5% and your salary stays the same, you’re effectively earning less each year. But if you increase your income, you can stay ahead of inflation instead of falling behind.

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5. Be strategic with spending

You can’t cut out all spending, but you can be smart about what you do need to buy. 

• Shop smarter: Buy in bulk from places like Costco and Amazon, switch to store brands, and use cashback apps.
• Cut unnecessary expenses: Cancel unused subscriptions and rethink non-essential spending.
• Lock in prices where possible: If you rent and like your place, ask your landlord whether you can lock in a longer lease to avoid future rent hikes.

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Example:

If your landlord typically raises rent by 5% each year, locking in a $1,500 lease for two years could save you $75 a month in year two—that’s $900 saved overall.

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It all starts with really understanding your current cash flow. That means knowing what your take-home pay is every month, your fixed expenses (the things you have to pay), how much you’re saving, and whether you’re living within your means for the leftover amount (or what goes to discretionary).
I ask my clients, “What if X happens? What if you lose your job? What if everything costs more?” If they’re living on the edge just getting by and things do get worse for whatever reason, it allows them to take ownership of the things they can control today. Typically, that means cutting back on discretionary spending and saving more.

FAQ

What is the closest percentage the U.S. has ever come to hyperinflation?

The only time the United States experienced hyperinflation was during the Civil War, when the Confederate dollar lost over 90% of its value. In modern times, the highest annual inflation rate was 14.8% in March 1980, during the stagflation crisis. While this was significant, it was far from hyperinflation.

What country has the worst inflation?

Venezuela has had the worst inflation in recent history, with hyperinflation peaking at  344,509.50% in February 2019. While its inflation rate has since declined, it remains one of the most unstable economies. Other countries with extreme inflation today include Lebanon, Argentina, and Zimbabwe, where annual inflation often exceeds 100%.

Will bitcoin cause hyperinflation?

Bitcoin itself is unlikely to cause hyperinflation, but its widespread adoption could contribute to financial instability in some economies. Hyperinflation is usually driven by excessive money printing and a loss of confidence in a currency, rather than by alternative assets like bitcoin. 

However, if governments lose control over monetary policy due to a shift toward bitcoin, this could exacerbate inflationary problems by reducing demand for fiat currency.

Who is most hurt by inflation?

Inflation disproportionately affects low-income and fixed-income households. Low-income earners spend a larger share of their income on essentials like food, housing, and transportation, which tend to rise in price the fastest. 

Fixed-income retirees relying on pensions or Social Security benefits may struggle because their income doesn’t always keep up with inflation. Savers also lose purchasing power if interest rates on savings accounts do not rise enough to offset inflation.