Why do we fear hyperinflation in a deflationary world?

Here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that — The Red Queen (Alice Through the Looking-Glass)

Some days ago Twitter CEO Jack Dorsey shocked the world by stating that “hyperinflation is happening”. This caused outrage on Twitter and beyond. US investor Cathie Woods quickly disputed Dorsey’s claim and stated that deflation is around the corner instead. Eventually, time will tell which of those views will be right.

The question remains: Why is inflation still a thing today, despite technological progress that should make all goods cheaper over time?

What is Hyperinflation?

Before we jump into details, let’s define the term hyperinflation:

Inflation is usually equated with the rise of the consumer price index (CPI) and hyperinflation is normally defined as a rise of consumer prices of more than 50% per month. According to this definition, we see that we are obviously not in this range at the moment; although the price inflation rates among industrial countries are much higher than usual.

However, relying on the consumer-price-index for measuring inflation is problematic for different reasons:

• First, this index is not reflecting your true spendings. In fact, the index is full of deflationary consumer goods, and conveniently lacks goods that are increasing in price.
• Second, it doesn’t include assets like real estate or stocks.
• Third, different countries use different commodity bundles to measure the change of prices.
• Fourth, the measured commodities are changed regularly.

Therefore we see that the CPI is not an objective measure, like a kilogram, meter, or second. It is a measure that is prone to manipulation and does not allow an objective comparison across time or countries.

Moreover, prices would be easier to measure, if we lived in a static world with no technological advancement. For example, we spend almost the same money on a new TV set as 20 years ago but today it is delivered with a much larger screen, higher resolution and access to the internet.