Record set in Hungary in 1946, when the inflation rate was about 42,000 trillion per cent

Inflation can be beaten, even in Zimbabwe

My favourite quote about inflation comes not from some dismal economic scientist, but from the late and much missed diarist, cad and Tory MP Alan Clark. Winding up one of his colleagues in the parliamentary Conservative Party who was fretting about inflation approaching 10 per cent, Clark said: "Personally, I wonder if it matters all that much. It's a million per cent or whatever in Brazil, and you can still get taxis and delicious meals. Sex doesn't stop."

Indeed not, though Clark was a little unfair on the Brazilians. Inflation there peaked at a mere 27,000 per cent in 1994, and has since been tamed. It is now down to 5.9 per cent, not much above our own rate.

However, Clark was typically careless about the very real damage that hyperinflation can inflict on a nation and its people, as a glance at the recent troubles of Zimbabwe amply demonstrates.

Last week an inflation rate of 11 million per cent was recorded, a world record. If the Olympic Games had medals for economic incompetence, Zimbabwe would probably win gold, silver and bronze. Unfortunately, its paper currency isn't based on any of those metals. Every so often the Reserve Bank of Zimbabwe knocks a few zeros off the bank notes, but the effect is temporary, and short-lived, and the whole mad process soon kicks off again.

If President Robert Mugabe really does offer his rival, Morgan Tsvangirai, the poisoned chalice of sorting out the economy, stabilising the currency will be one of the trickier tasks.

Even by the standards of some famous historic hyperinflations, Zimbabwe's is a bad case. Admittedly the Zimbabwe dollar will have to be abused some more if it is to challenge the record set in Hungary in 1946, when the inflation rate was about 42,000 trillion per cent (or 41,900,000,000,000,000 per cent, if you like gazing at zeroes). Still, it wouldn't take much to beat Weimar Germany's peak of 32 million per cent, seen in 1923.

The good news is that hyperinflation can be beaten. As Mr Tsvangirai hopefully realises, the existence of hyperinflation, like all inflations, is a symptom of an economic problem rather than the problem itself. You can't really deal with inflation; you have to tackle it indirectly, by building a competitive, efficient economy and by creating independent monetary institutions that are respected.

The case of Brazil is instructive. There the government of Luiz Inacio Lula da Silva, or Lula as he's universally known, set about modernising the welfare state, liberalising the economy, investing in Brazil's infrastructure and running monetary policy honestly. It worked, and now Brazil takes her place alongside China, Russia and India as an economic superpower of the future, with a currency no longer a joke. The Brazilian real is respected; the Zim dollar can be too.

LNK

Record set in Hungary in 1946, when the inflation rate was about 42,000 trillion per cent

Record set in Hungary in 1946, when the inflation rate was about 42,000 trillion per cent

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