Hanke Weekly Inflation Roundup

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 below shows the annual rates for the seven countries with the highest inflation rates.

At present, Venezuela is suffering from hyperinflation and holds down the top spot on my list, with an annual inflation rate of 18,926%. Note that my measurement of the implied inflation rate is much higher than the widely reported International Monetary Fund’s (IMF) end-of-year forecast of 12,870% (13,000% rounded). A comparison of my measurements with the IMF’s projections for the other six countries’ year-end annual inflation rates shows that the IMF's projections are similarly way off the mark.

Indeed, my current measured inflation rates for “today” exceed those that the IMF projects, with the exception of South Sudan's, by a wide margin. 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 the IMF forecasts, and why it does so with such reverence.
Past Blogs

Venezuela's Inflation Surges to A New High: 8321%

March 22, 2018

After Venezuela ditched its multiple exchange-rate system and announced that it would introduce a new cryptocurrency (read: the petro), the hapless bolivar staged a bit of a rally. Many people concluded that the rally was the result of these two policy changes. While that conclusion might hold some water, it isn’t much.

more »

The U.S. Forces Latvian Bank to Liquidate And Destabilizes Latvia

March 16, 2018

oday, Latvia’s ABLV Bank—its third largest, and largest private bank—announced that it had received approval from the Council of Financial and Capital Market Commission (FCMC) to liquidate, and that the Bank was proceeding with the process of liquidation. The proximate cause was the U.S. Treasury. It invoked Section 311 of the USA Patriot Act on February 13th, asserting that the ABLV had an “institutionalized money-laundering” problem,

more »

Venezuela's Inflation Surges to A New High: 7459%

March 14, 2018

After backing off over the past month and a half, Venezuela's hyperinflation is surging again, making a new high of 7459% yr/yr. The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. On the black market (read: free market), a bolivar is worthless, and with its collapse, Venezuela is witnessing today the world’s worst inflation.

more »

Hanke’s Annual Misery Index: The World’s Saddest (And Happiest) Countries

March 08, 2018

The human condition inhabits a vast continuum between "miserable" and "happy." In the sphere of economics, misery tends to flow from high inflation, steep borrowing costs and unemployment. The most surefire way to mitigate that misery: economic growth. All else equal, happiness tends to blossom when growth is strong, inflation and interest rates low, and jobs plentiful.

more »