& Tornado Alley
Brazil once was plagued by chronic inflation which turned into hyperinflation. The source of this inflation was the expansion of the money supply. The government financed its operation and its development projects not out of taxes or borrowing funds but by simply creating money. Here is the results of that policy:
|Price Levels in Brazil, 1980 to 1997|
|Year||Consumer Price Index|
From 1980 when the IMF price level series began to 1995 the price level increased by a factor of 1.0 trillion. That which cost 1.0 Real in 1980 cost 1.0 trillion Reais in 1997. Although the price levels in the late 1990's were at astronomical levels compared to 1980 the rates of inflation in those years were not the extreme cases. In fact, as the rates of inflation shown below indicate the hyperinflation had moderated into ordinary inflation.
|Rates of Inflation in Brazil, 1981 to 1997|
|Year||Rate of Inflation|
The following statistics show the expansion of the money supply in Brazil over the period of the hyperinflation. There was a corresponding inflation in the nominal GDP. The computed velocities of money do not seem to make much sense in terms of the expected response of the public to the inflation but that is probably due to the limited accuracy of the statistics. It is hard to compile accurate statistics during a period in which prices are changing so rapidly.
|Money and GDP in Brazil, 1970 to 1995|
The relevant statistics for the period are the levels of real GDP and real percapita GDP.
|Real GDP, Population and GDP percapita in Brazil, 1980-1996|
During the hyperinflation the real GDP did not decline but it was more or less stagnate and good barely keep up with population growth. Once the hyperinflation was controlled the economy began to achieve real growth and moderate increase in percapita real GDP.
(To be continued.)
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