Purchasing Power Stealthily Erodes in Britain and America

The story of hyperinflation is well-known in countries like Zimbabwe, Argentina, and Venezuela. However, a more subtle form of currency erosion has been occurring in Britain and America since 2008.

After the financial crisis, central banks expanded their balance sheets, government borrowing surged, and interest rates were held near zero for years. This led to a decrease in purchasing power over time, even though the numbers on bank accounts remained stable.

The IMF estimated twelve-month inflation at roughly 500 billion percent by September 2008 in Zimbabwe, while Argentina averaged around 2,600% inflation in 1989 and 1990. In Venezuela, annual inflation was approaching 489,000% by September 2018.

In contrast, the dollar has lost approximately 35% of its purchasing power since the financial crisis, while sterling has lost around 40%. Even during the pre-Covid period, the dollar lost roughly 23% and the pound about 24% in terms of purchasing power.