Metis AM
In the past few weeks, you can’t have missed headlines that the UK is experiencing a surge in the rate of inflation. From loaves of bread to litres of petrol, the price of many goods and services has risen sharply due to supply chain issues and the ongoing war in Ukraine.
According to data from the Office for National Statistics, the rate of inflation rose to 9.4% in the 12 months to June. This is almost five times the Bank of England’s annual target of 2%.
Of course, while this is a serious issue it’s also important not to panic. So, to put this problem into perspective, we’d like to explore a few historical examples of truly out-of-control inflation throughout history.
1. The First French Republic (1792-1804)
In the years leading up to the revolution, the French government had built up a considerable amount of debt. By 1789, they owed around 950 million livres to various banks and creditors.
When the First Republic took power, they realised they had to pay off this huge debt, so they started printing assignats, which were essentially a type of government bond, to raise money. Each of these certificates would be worth 1,000 livres and would pay 5% annual interest.
While this was initially successful, and helped to stave off bankruptcy, problems quickly began to arise. Due to the lack of physical money, some members of the National Assembly lobbied to have the assignats considered legal tender. While this was an understandable move, it meant that their value fell rapidly as the government printed more and more of them.
At the same time, the United Kingdom, who were always happy to knock France down a peg or two, began counterfeiting the bills to weaken this new currency. Under the guidance of the economist William Playfair, the British government produced millions of assignats to disrupt their old rival.
Due to this flood of new currency, the price of goods quickly rose in France, with inflation reaching a high point of 304% in August 1796.
2. Occupied Greece (1941-1944)
As you may remember from your high school history lessons, the Axis powers invaded Greece in the summer of 1941. Despite the best efforts of the Greek and British armies, the country was quickly conquered and divided into zones of occupation.
During this time, the Germans and Italians exported a huge amount of food and raw materials from Greece to supply their troops in North Africa. Since they had no way to stand up to their occupiers, the Greeks were extorted into selling their goods for far less than they were actually worth.
As Greek exports fell, so too did the demand for their currency which led to a freefall in the value of the drachma. In turn, this caused the price of food and other commodities to spike, causing significant hardship for many people.
When hyperinflation was at its peak in the autumn of 1944, Greece’s annual rate of inflation stood at 13,800%. Even though Greece was liberated in the same year, it would be some time before prices returned to normal.
3. Weimar Germany (1918-1933)
One of the most famous examples of hyperinflation is that of the Weimar Republic. In the aftermath of the first world war, the German economy was in shambles and the government owed a significant amount of money in war reparations.
These payments had to be made either in hard currency or commodities, such as gold. As a result, the Weimar government started buying foreign currencies at any price, printing more and more marks to buy them, which rapidly led to hyperinflation.
Banknotes quickly became worthless and were often used as cheap wallpaper or even firelighters, as the cost of living was rising so rapidly. At its peak in November 1923, the rate of inflation in Weimar Germany stood at an incredible 29,525%.
4. The Federal Republic of Yugoslavia (1992-2003)
While nominally a communist state, Yugoslavia took a non-aligned stance in the Cold War, allowing it to trade with both the capitalist west and socialist east. However, this position became problematic in the 1980s as it had some of the worst of both worlds.
For a start, the country fell heavily in debt to western nations after economic depressions in the 1970s and 80s. By 1988 the country owed around $21 billion in loans, equivalent to roughly $52 billion in modern money.
At the same time, the country had a socialist economic model, with centralised pricing. This essentially meant that the government determined the cost of goods, not the free market. As you might imagine, this inefficient system seriously hampered economic growth.
In 1989, just before the fall of the Berlin Wall, Yugoslavia agreed to several major reforms in exchange for American aid. One of these was price liberalisation, which the west hoped would be a stepping stone towards a more capitalist economy.
When the Yugoslav wars started in 1991, the country was subjected to major international sanctions, causing a serious economic downturn. Due to the collapse of exports and the severing of international supply chains, the value of the Yugoslav dinar sank like a stone.
Due to the liberalising reforms a few years earlier, prices quickly began to rise as supplies of food and commodities dwindled. At its height in 1994, the rate of inflation in Yugoslavia stood at 313 million percent (313,000,000%).
5. The Second Hungarian Republic (1946-1949)
After the second world war, the nation of Hungary had been devastated by the conflict. More than half a million Hungarians had been killed in the fighting and much of the country’s infrastructure had been destroyed.
This made the process of rebuilding very difficult, as the nation lacked both capital and manpower. With the economy on life support, massive food shortages began to arise, causing the price of goods to increase sharply as people rushed to buy what was available.
At its height in 1946, the annual rate of inflation In Hungary stood at 41.9 quadrillion percent (4,190,000,000,000,000,000%), which is the highest rate ever recorded. To put this into perspective, it meant that prices doubled around every fifteen hours.
Get in touch
While inflation is unlikely to reach the dizzying heights it has in the past, it can still affect your financial wellbeing. If you want to know more about how you can protect your wealth from it, we can help. Please email enquiries@metiswealth.co.uk or call 0345 450 5670.
