Hyperinflation is an economic term to describe excessive, rapid and out of control increase in price of goods and services in an economy. Hyperinflation is quickly rising inflation usually measuring more than 50% increase in price in one month. Hyperinflation is rare event that usually occur during the time of war, in underlying production economies or due to overprinting of money by central banks. It is uncommon experience for developed economies, although it has happened many times throughout the history in countries such as Russia, Germany, China, Argentina and Hungary. Hyperinflation is not a common event but once it begin, it can be out of control.
Hyperinflation can be caused by number of reasons, underneath are some most common causes of hyperinflation.
One of the most common reasons is loss of confidence on monetary system or economy of the country. Hyperinflation occur when there is loss of confidence in country currency and central bank ability to maintain currency value. In this situation, people begin to store goods and commodities that have value. Thus the result can lead to raise the price of basic goods such as fuel and foods. Thus rise in price cause hyperinflation.
The second major reason of hyperinflation is an excessive money supply by Central Bank. Hyperinflation occur in time of depression and severe economic turmoil. A depression is prolong period of negative growth. In response to depression, central bank print extra money to encourage banks to lend to businessman and consumers to create spending and investment. However if extra money supply by central bank is not supported by economic growth as measured by GDP, the result can lead to hyperinflation.