In economics, inflation means an overall increase in prices. Rising inflation reduces the value of money by eroding the purchasing power of a unit of currency, such as a dollar bill. The inflation rate represents the percentage change in price levels. Economists may not agree on what constitutes a high rate of inflation, but they agree that it poses huge economic problems.
The inflation rate refers to the percent change in an aggregate measure of price levels between time periods. In the United States, most economists use the Consumer Price Index, or CPI, to measure the inflation rate. The U.S. Department of Commerce calculates the CPI each month.
The Economics Web Institute defines high inflation as an increase between 30 percent and 50 percent a year. Central banks, such as the Federal Reserve in the United States, strive to hold inflation to a minimum as part of their monetary policy. Some central banks strive to contain inflation rate increases to a target range of 1 to 3 percent.
The definition of a high inflation rate may differ across countries, based on their own histories and experiences with inflation. The Economics Web Institute notes that a moderate inflation rate between 5 percent and 30 percent a year may qualify as high inflation in some countries. For countries with an inflation target of 1 to 3 percent, an increase of 5 percent or more a year may be considered a high inflation rate.
The term "hyperinflation" refers to inflation that rises at a rapid, out-of-control rate. No precise numerical definition of the term exists, however. Hyperinflation simply refers to uncontrolled high increases in the inflation rate. The Concise Encyclopedia of Economics refers to inflation increases of more than 50 percent a month as hyperinflation. Economist Stephen Hanke cites the runaway inflation that gripped Zimbabwe in 2007 as an example. He writes that, in March 2007, inflation in Zimbabwe soared 50 percent. The following month, Zimbabwe’s government devalued its currency by 98 percent.
High inflation unaccompanied by a corresponding rise in incomes reduces consumer spending, as well as saving and investment options. Reduced spending by consumers harms corporate profits, which reduces stock prices. High inflation also harms bond investments by making their fixed payouts less valuable. To control inflation, central banks implement contractionary monetary policy, reducing the amount of money in circulation and making it more difficult for consumers and businesses to obtain credit.