Venezuela: Not Hyperinflating -- Yet

Although Venezuela's inflation has soared (see "Up, Up, and Away"), Venezuela is not experiencing a hyperinflationary episode -- yet. Since the publication of Prof. Phillip Cagan's famous 1956 study "The Monetary Dynamics of Hyperinflation," the convention has been to define hyperinflation as when the monthly inflation rate exceeds 50 percent.

I regularly estimate the monthly inflation rates for Venezuela. To calculate those inflation rates, I use dynamic purchasing power parity (PPP) theory. While Venezuela's monthly inflation rate has not advanced beyond the 50-percent-per-month mark on a sustained basis, it is dangerously close. Indeed, Venezuela's inflation rate is currently 45 percent per month (see the accompanying chart).

If inflation moves much higher, the legacy of Hugo Chavez's Bolivarian Revolution will be that Venezuela joins the rather select hyperinflation club as the 57th member. Yes, there have only been 56 documented hyperinflations.