Turkey and now Argentina have inflation around 70%
How does this happen? And how can they cope with similar interest rates by their central bank?
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Actual inflation is a measure of how much new currency is being introduced. Which has been insane, world wide, for a very long time now. Which is why we don’t care about it.
What we do care about is the CPI or consumer price index. Basically, “this is the stuff people need money to have, how much does the money get them?” So like rent, utilities, groceries, vehicles, etc. The stuff people spend money on.
We frequently use this as a measure of inflation, because it’s more accurate to how inflation is affecting the common person.
So when we say 8.5% inflation in the USA. That doesn’t mean there’s 8.5% more dollars in circulation. There’s probably 20% something more dollars. But the buying power of the dollar is 8.5% less. So if a loaf of bread cost $1. Now it costs $1.09.
How the prices that determine the CPI change is a complicated economics problem. Because there’s nothing stopping the baker from saying “that loaf now costs $2.” Well nothing other than the baker across the street selling the same bread for cheaper and stealing business.
But when all the baker’s agree that the price of flour and yeast is going up they gotta raise their prices.
Eventually you’ve got some folks somewhere in the supply chain saying “I don’t think inflation is stopping, we better charge more pre-emptively.” Or basically they’re losing confidence in their currency. They don’t think it will hold value so they’re going to get as much as they can for it.
This is what’s happening in Turkey. It’s what happened during the great depression. And generally it’s pretty bad. You need to have confidence in your medium of exchange or else it becomes worthless.
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