Analysis: A Handbook of (Mostly Failed) Radical Efforts to Fight Inflation

LONDON/NEW YORK, Jan 21 (Reuters) – More governments are looking for ways to prevent soaring inflation from stoking economic turmoil – and even public unrest – without raising interest rates.

But as the examples below show, past attempts to rein in soaring prices without raising borrowing costs have often ended badly.


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Turkey has spent years cutting rates only to rise again when the pound crashes, fueling inflation.

He has dabbled in measures such as currency restrictions, but this time President Tayyip Erdogan is going all-in by offering to compensate lira savers from the public purse if currency losses exceed account interest rates. banking. Read more

This could prove costly and jeopardize a main attraction for foreign investors – Turkey’s relatively low public debt.

“What the Turks are trying, honestly, I’ve never seen anything like this before,” said Gilles Moec, AXA’s chief economist.

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A lack of faith in economic institutions – and the peso – has plagued Argentina for decades.

Efforts by right-wing and left-wing governments to curb runaway inflation have led to price freezes on many commodities and capital controls.

Argentines often prefer to do business in dollars, but limited access to US currency has created a huge discrepancy between official and black market exchange rates.

The central bank recently raised interest rates to 40% from 38%. But the “real” rate, taking inflation into account, remains deeply negative.

Argentina’s Goldman Sachs economist Alberto Ramos said headline inflation has averaged 47.2% since July 2018, attesting to a “significant dysfunction in macroeconomic policy and the failure of authority currency to ensure monetary control”.

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Hard-left governments have tried virtually everything for two decades, from fixing prices in 2007 to offering dollars at a discount – a policy quickly reversed due to frenzied demand.

Venezuela defaulted in 2017 and the printing of banknotes to cover the budget deficit caused hyperinflation which reached 65,000% in 2018. The IMF predicts inflation of 2,000% this year.

President Nicholas Maduro eased some price controls in 2019 and lifted a ban on foreign currency transactions. Official and unofficial exchange rates aligned, but the bolivar plunged 8,000% and Venezuela’s debt-to-GDP ratio soared to 500%.

Last month, Reuters reported that the government was paying suppliers in dollars to help control inflation.

But the Inter-American Development Bank and others have warned that such “dollarization” leaves those who can’t get dollars with little access to basic goods, including food.

Venezuelan hyperinflation


The high inflation of the 1980s became hyperinflation in the 1990s, just as Brazil was returning to democracy.

Under President Fernando Collor de Mello, prices, wages and 80% of private assets were frozen and financial transactions heavily taxed.

Inflation peaked at almost 3,000% in 1990 and although it fell to 433% in 1991, it returned to almost 2,000% in 1993.

The 1994 “Real Plan” brought things under control, establishing a new currency, raising rates and cutting spending. Since 1997, inflation has been in the single digits in all but one year.


Poland’s “Inflation Shield 2.0” includes temporary value-added tax (VAT) cuts on fuel, foodstuffs and fertilizers to offset annual price growth that could reach double digits for the first time since 2000. read more

JPMorgan estimates last week’s measures and November’s Shield 1.0 will cut inflation by 3 percentage points by mid-year, while Poland’s PM estimates Shields 1.0 and 2.0 will cost up to 30 billion zlotys ($7.53 billion), or almost 1% of GDP.

But “maintaining an optically lower CPI is a losing battle if price pressures prove persistent,” said JPMorgan’s Jose Cerveira.

Highest inflation in Poland since 2000


Prices in the Democratic Republic of the Congo rose 6.3 billion percent during the first half of the 1990s as budget deficits were financed by rampant money printing.

Moderate monetary and fiscal policies and a system of floating exchange rates brought hyperinflation under control in 2001.

Zimbabwe has printed so much money – including a 100 trillion Zimbabwean dollar banknote – that its inflation rate reached 500 billion percent in 2008, rendering the currency almost worthless.

Government-imposed price caps prevented sellers from making a profit, leading to major shortages.

By late 2008, Zimbabweans were using US dollars for transactions and in 2009 a multi-currency system that also included the South African rand was introduced.

A new Zimbabwean dollar was launched in 2019, but Harare was forced back to the multi-currency setup when COVID-19 hit in 2020, pushing inflation to 349%, according to the IMF.


Hyperinflation during the French Revolution saw monthly price increases peak at 143%. The “General Maximum Law” of 1793 responded with price limits and the death penalty for “fraud” on prices.

Historians say it was mostly a failure, as traders forced to sell below cost turned to the black market or kept the goods for themselves, leading to major shortages.


Falling oil prices and rising US rates halted Mexico’s economic boom in 1980-81 and strained the peso’s peg to the dollar, capital flight and dwindling foreign exchange reserves forcing a 260% devaluation in 1982.

Dollar bank deposits were converted into pesos and a moratorium was declared on debt payment. By the end of the year, all exchanges were regulated, comprehensive capital controls were enacted, and banks were nationalized.

Annual inflation approached 100% in 1982-83 as real GDP per capita plummeted. It remained high, exceeding 150% in 1987.

In 1994, the peso crisis – which spread to other emerging economies – forced a free float which caused the currency’s value to plummet. Mexico’s banking sector collapsed and the country needed a $50 billion international bailout to avoid default.

A severe recession and more hyperinflation followed, but by 2002 Mexico had superior credit ratings.

THE 1970S

Many countries turned to price controls after the collapse of the Bretton Woods fixed exchange rate system in 1971 and the 1973 oil crisis triggered a global spike in inflation.

After pulling out of Bretton Woods, the United States imposed a 90-day price and wage freeze for the first time since World War II.

Seen as a political success, it turned into an economic failure, leading to stagflation and monetary instability. The dollar plunged by a third in the 1970s.

France also implemented price controls, as did Great Britain where inflation was around 25%. The unpopular politics helped spark labor strikes that marked the “Winter of Discontent” of 1978–79.

Inflation declined in the early 1980s after interest rate hikes and an easing in oil prices.

“History tells you it never works,” AXA’s Moec said of price and salary caps. “But that doesn’t stop people from trying.”

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Inflation peaks of the 1970s

Reporting by Marc Jones in London and Rodrigo Campos in New York; Editing by Catherine Evans

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