On October 27th, the ticket of Alberto Fernandez and Christina Kirchner defeated the incumbent President of the Argentine Republic Mauricio Macri in the general election. Days after the primary election on August 11th, Argentina’s inflation spiked to 107%/yr. from the pre-election rate of 62%/yr. Today, Argentina’s annual inflation rate is 62%/yr. Since August 11th, the peso has depreciated by 26%.
Venezuela has been suffering from hyperinflation since November 2016 and holds down the top spot on my list, with an annual inflation rate of 3,708%/yr. Note that my MEASUREMENT of the implied inflation rate is accurate and much lower than the widely reported International Monetary Fund’s (IMF) end-of-year FORECAST of an absurd 200,000%/yr. I write “absurd” because no one has ever been able to forecast the durations and magnitudes of hyperinflations.
You can MEASURE hyperinflations with great accuracy, but you can’t FORECAST their durations or magnitudes.
A comparison of the IMF’s projections for Zimbabwe’s year-end annual inflation rate is also way off. Given these large divergences and the IMF’s poor record of forecasting inflation in countries experiencing elevated inflation rates, one wonders why the financial press reports these forecasts, which have usually proved to be useless.
The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black-market (read: free market) for currency and the data are available, changes in the black-market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates—if the annual inflation rates exceed 25%. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.
I compute the implied annual inflation rates with high-frequency data and report them on a daily basis. PPP is used to translate changes in the black-market exchange rates into annual inflation rates. For the countries that I follow each day, the table above shows the annual rates for the five countries with the highest inflation rates.
Authored by Steve H. Hanke of the Johns Hopkins University.