Newsminute Economics: #6 Part 2 The CPI, Plush Animals & Inflation

Hi there, I’m Professor Tigger and welcome back to another episode of Newsminute Economics. You’re reading this, assuming you have already read Part 1, where I discussed how the CPI got calculated and three reasons for inflation. If you haven’t, I recommend you to go back and read it, which will help you understand this edition. Still here? Then let’s dive right in.

Apart from the three chief reasons for inflation, there’s also another nightmarish inflation type known as hyperinflation. It’s like a bad problem under a magnifying glass, making it worse. One extreme example was Zimbabwe, with increasing inflation starting in the late 1990s and reaching hyperinflation in 2007. The government in power at the time, led by Robert Mugabe (moogabe), wanted to find a way to service their financial needs in the Second Congo War. They had already pushed taxes to the limits and then came the idea that would devastate the Zimbabwe economy. Mugabe decided to print more money. Soon enough, prices rose, as there was more money and not enough goods to keep up. Then Mugabe decided to print even more money to buy as many things as before, making the situation worse. Remember this: The more you print a currency, the less value each bill contains. Maybe Mugabe didn’t get that. Anyway, it continued in a feedback loop: Increasing prices, more money-printing, and ultimately even higher prices. That is hyperinflation.

At first, the Zimbabwe government printed 10 million dollar notes, then 10 billion, 100 billion, and finally, the 100 trillion Zimbabwe-dollar note. Inflation got so bad that people had to carry loads of banknotes to buy loaves of bread. People started flocking to ATMs at 2 am, waiting in long queues to retrieve banknotes, decreasing in value by the hour. On lucky days, you could get a maximum of 2 USD worth of Zimbabwe dollars. On unlucky days, all that missed sleep and standing and waiting resulted in nothing, as there were sometimes not enough banknotes when you got to the ATM. It is unclear how worse it got, the hyperinflation in Zimbabwe since the government stopped announcing official statistics. It gets estimated that Zimbabwe’s peak month of inflation reached 79.6 billion percent (month-on-month) and 89.7 sextillion percent year-on-year in mid-November 2008. For context, one sextillion is one followed by 21 zeros behind it. Anyway, inflation in Zimbabwe got so worse that even though anyone could become a trillionaire, you would be lucky to get by on all that money. It’s like fire: The more you feed it, the worse it gets. If I were to advise people not to find themselves in a hyperinflation situation using one sentence, it would be: Never mess with printers, especially those that print money. And morally, to power as a whole, and how some could overuse it: With great power comes great responsibility. And I would need to thank Peter Parker, a.k.a Spider-Man, for that.

Eventually, the Zimbabwe dollar got abolished. The government got forced to legalize the use of foreign currencies, and the hyperinflation fire finally had gotten extinguished. It’s not just risking the collapse of your country’s currency or even the economy when inflation comes to mind; The difficulty in reversing inflation is gaining public trust. Once no one believes in your currency, it would automatically break down. That was what made it hard to extinguish the hyperinflation fire. It’s easy to feed it burnable material like wood, but it’s not the same when you want to “take” the wood out.

Anyway, I’ve promised you, dear reader, in the last episode that I would also be introducing a famous fad to prove holes in the system of the CPI. Fads are a hot-selling product for a short time (usually), and demand skyrockets. Then, when it’s all over, the seller walks away with millions or even billions of dollars, and that product is just another outdated thing. Or when sometimes, like right now, the price of oil is going sideways because Russia (who has invaded Ukraine) is getting sanctioned, and many Western countries have banned its imports. That could cause the market to act weird and ruin the CPI system.

A famous example of a fad was the Beanie Baby, which occurred around the 1990s. It got invented by Ty Warner, who founded Ty, the multinational corporation that sells Beanie Babies. The Beanie Baby wasn’t that different from other plush animals. The difference was it was stuffed with plastic pellets and not filled to the brim. Was that an advantage? Everyone then thought it was great because it made them easier to maneuver and put into different poses. So sales took off.

There was this trick that Warner used that helped sales and business. There were the original Beanie Babies in the form of a few animals, including a dog. After a few months, Warner then retired that version. Meanwhile, he brought an updated version to the market (this usually meant the color changed or another animal altogether). Since the old version was to be retired, people would rush to the stores and buy it for collecting. Then it was all over again. Finally, Warner announced that all Beanie Babies would be retiring on December 31st, 1999. It never came, though it was one last tactic, and everyone did indeed believe it, sending them rushing for more. After that final straw, the fad of the Beanie Babies was (un)officially over. It made Warner a billionaire, but the newer editions were effectively worthless.

To this day, still, some rare editions of Beanie Babies sell very expensively. For example, some exclusives like Princess Diana Beanie Baby, which honors the deceased princess, are listed on eBay typically for several thousand USD. But collectors estimate, depending on the condition, the royal-purple plush toy to be worth from $5 to $100. Indeed, it sold at the time for $5 to $7. It’s just another example of a well-played fad.

These fads, and other unpredictable, though also hot products, can influence the accuracy of CPI measurement. The CPI gets measured through a few representing and crucial products of each industry. And because of that, if that product were to fluctuate in price and quantity, it would seem that the entire industry changed, which isn’t true. It was only the product that fluctuated.

However, even though these sometimes mismeasurements happen, the CPI is still very reliable, and when inflation lurks, it could just be those measurements that help save an economy. Have you learned new things in this two-part series on CPI and inflation? I hope you did. You never know; It might just be some random knowledge that helps you defeat the many challenges life throws at you. That’s the end of this episode of Newsminute Economics. I’m Professor Tigger. Thank you for reading, and tune in next time for more.