Chronic inflation Facts for Kids

Chronic inflation happens when prices in a country keep going up a lot for many years. This makes money lose its value over time. It often happens because a country prints too much money.

When people expect prices to keep rising, it becomes very hard to stop. Trying to slow down inflation can sometimes lead to more people losing their jobs. Chronic inflation is different from hyperinflation, which is when prices rise extremely fast in a very short time.

Understanding Chronic Inflation
- When Did Chronic Inflation Start?
- What Causes Money to Lose Value?
  - Government Spending and Money Supply
  - Other Reasons for Price Increases
Countries That Faced Chronic Inflation
See also

Understanding Chronic Inflation

When Did Chronic Inflation Start?

Chronic inflation is mostly a problem of the 20th century. It was first noticed by an economist named Felipe Pazos in 1972. Before World War II, most countries used money backed by valuable metals. Paper money not backed by anything was rare. High inflation usually only happened during wars and didn't last long.

Many experts believe chronic inflation first appeared in Latin America after World War II. Because of this, it was sometimes called "Latin inflation." Some also point to France in the 1920s as an early example.

What Causes Money to Lose Value?

Most economists agree that chronic inflation is caused by a steady increase in the amount of money in circulation. When there is too much money, its value goes down.

Government Spending and Money Supply

Sometimes, governments print more money to pay for public programs. This can lead to more money in the economy. When there's more money, but not more goods to buy, prices tend to rise.

In the past, different groups in a country sometimes had strong disagreements about economic policies. This made it hard for governments to control rising prices. Governments often tried different ways to reduce inflation, like changing how central banks work. However, people can become used to moderate inflation, making it harder to fix.

Other Reasons for Price Increases

Other reasons for chronic inflation include countries importing much more than they export. This can make their currency lose value. Also, if a country's population grows much faster than its ability to produce goods, prices can go up. Environmental problems or disasters can also make it harder for governments to manage the economy. This can lead to higher prices.

Countries That Faced Chronic Inflation

Many countries have struggled with chronic inflation. Here are a few examples of how different nations experienced this economic challenge.

Argentina's Economic Journey

Argentina has a long history of high inflation. In 1989, the country faced a hyperinflation crisis. Prices rose by 257% in one year. This led to public unhappiness and serious economic problems.

In the 1990s, Argentina tried to fix this with a plan. They linked their currency, the Argentine peso, to the United States Dollar. This helped reduce inflation to almost zero. However, these policies ended with very serious economic problems in 2001.

Inflation started rising again around 2007. During the government of Cristina Kirchner, inflation was high. It reached 30% to 40% in 2013. This was partly balanced by people having good purchasing power and government help. However, this also increased the government's debt.

In December 2015, Mauricio Macri became president. Inflation was around 40%. By the end of 2016, it was 42%. The government tried to lower inflation. They aimed for 20% in 2017, 10% in 2018, and 5% in 2019. Inflation did drop to 24% in 2017. But it rose to 47.6% in 2018 and 53% in 2019.

Chile's Long Battle with Inflation

Chile experienced long periods of inflation for most of the 20th century. Prices started rising steadily in the late 1930s. Inflation reached 84% in 1955. After a brief slowdown, it rose again.

In late 1973, inflation peaked between 500% and 1,000%. Some people consider this hyperinflation. A change in government leadership happened in 1973. A new military government took over. This government introduced free-market economic policies. These policies slowly ended chronic inflation. For the first time in 45 years, inflation became a single-digit number. The overall impact was huge: one current Chilean peso is worth one million pre-1960 pesos.

Mexico's Currency Changes

Mexico faced a severe economic crisis in 1982. This was partly due to high government spending. The country could not pay its international debts. This led to money quickly leaving the country. Mexico then suffered over a decade of chronic inflation. Its currency, the Mexican peso, lost much of its value.

By 1991, the highest banknote was 100,000 pesos. Many Mexicans started saving their money in U.S. dollars. On January 1, 1993, Mexico introduced a new currency. It was called the "nuevo peso" (new peso). This new peso removed three zeros from the old one. One new peso was equal to 1,000 old pesos. This showed an inflation rate of 10,000% over that decade.

Turkey's Fight Against High Prices

Throughout the 1990s, Turkey struggled with very high inflation rates. This eventually led to an economic slowdown in 2001. In 1995, the highest banknote was 1,000,000 lira. By 2005, it was 20,000,000 lira.

Recently, Turkey has managed to achieve single-digit inflation. This was the first time in decades. In 2005, Turkey reformed its currency. It introduced the New Turkish Lira. One new lira was exchanged for 1,000,000 old lira.

Venezuela's Oil and Inflation Story

Venezuela has often faced inflation problems. These were linked to economic management and relying too much on oil. The longest period of high inflation was in the 1980s and 1990s. Inflation reached its highest point in 1996, at 118.8% in July.

Oil exports make up more than half of Venezuela's economy. They are also about 95% of its total exports. When oil prices dropped after the 1970s, Venezuela's economy struggled. The government tried to control prices and took over some businesses. In 2008, they revalued the bolivar, removing three zeros.

However, the country continued to rely heavily on oil. This made it vulnerable to global oil prices. As of January 2014, Venezuela had the highest inflation rate in the world. It was 56.2% (and 63.4% in August 2014). The economy shrank for three quarters in a row. This officially put the country in a recession.