What is hyperinflation, what causes it and how’s it affected Venezuela?

VENEZUELA is teetering on a humanitarian disaster as it's in the grip of a hyperinflation economic catastrophe.

Here's what you need to know about hyperinflation, what causes it and how it's affected the South American country.

What is hyperinflation?

Hyperinflation is the term used to describe when the costs of goods and services rise at a rate of more than 50 per cent a month.

Due to the rate of hyperinflation, basic items such as a loaf of bread or milk could cost one price in the morning but be at a higher price within a matter of days.

It rapidly erodes the real value of the currency.

What causes it?

Hyperinflation occurs when there is a continuing rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services.

In simple terms, this means that when a country's government starts printing money to pay for its spending but ends up with a surplus, it creates a vicious circle.

Due to the rapid growth of new money, prices skyrocket and to counteract this, growing amounts of new money is needed to fund government deficits.

This process then results in both monetary and price inflation at a rapid pace, causing the local population to spend money which further accelerates prices.

This means that the increase in price level is greater than that of the money supply.

How has hyperinflation affected Venezuela?

Venezuela is in the grip of a hyperinflation economic catastrophe after 19 years of successive socialist governments have failed to control the cost of basic goods, which are now doubling in price on average every 26 days.

Over the last five years, prices have risen 41 per cent in 2013, 63 per cent in 2014, 121 per cent in 2015, 481 percent in 2016 and over 4,000 per cent in 2017.

The troubled nation now stands on the brink of collapse with spiralling inflation, which could hit one million per cent by the end of the year, as the economic crisis deepens

In April, 2018, The Sun Online reported how many people can't afford basic items like food and medicine, with child malnutrition at record levels in the country.

Due to huge state subsidies, a full tank of petrol is around 5p — 20 times less than a bottle of water — but production is now so inefficient that the country is importing oil.

A worker on the £25-a-month minimum wage must now work for two weeks to afford a bag of rice.