How Would Hyperinflation in the USA Affect New Zealand? [2023 Projections]

How Would Hyperinflation in The USA affect New Zealand?

How would hyperinflation in the USA affect New Zealand? How would interest rates here be affected? And what about the New Zealand dollar?

Two years ago we were merely talking about the possibility of inflation to come. See: Inflation in 2021 and Beyond: What’s Different to 2009? But since then we have seen record high inflation rates in both New Zealand and much of the rest of the world. Although these are still on long way from hyper-inflationary levels (thankfully!).

Now here’s a question from a reader on what would happen if the inflation rate really took off in the USA:

“What do you reckon would happen to the NZD direction and NZ interest
rates if hyperinflation were to occur in the US?”

Estimated reading time: 9 minutes

What Is Hyperinflation?

We’ve all heard the term hyperinflation. The German weimar hyperinflation is one most of us will have learnt something about in history class. Or more recently the hyperinflation in Zimbabwe as we have discussed here.

But first just what exactly is hyperinflation?

“Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.”


A Real World Hyperinflation Example

For example, a 50% inflation rate would be the price of a loaf of Vogels bread increasing from $4 to $6 over the next month. At a glance that may not sound so bad for one loaf of bread. But when all your monthly necessities cost 50% more in a month, just getting by for many people would be tough.

However, even more significant is when 50% is compounded every month. You then get a parabolic rise by the end of the year.

Below is that loaf of Vogels bread extrapolated out over a year at a 50% price rise every month…

(Sidenote: Actually maybe we should have started off with Vogels bread at $5 as that is actually todays price! Up 25% in just 2 years!)

Hyperinflation - Price of 1 loaf of Vogels bread at 50% inflation/month

In a year that $4 loaf is now $346. Or a rise of 8550%!

How Could Hyperinflation Occur in the USA?

Currently there is a plenty of debate about the US debt ceiling and whether they will get a deal done to increase this for the 79th time. Assuming the ceiling gets extended yet again, this will allow the US to issue more debt and just as importantly to keep paying the interest on its current debt. As new debt is needed to pay for the interest on the old debt. As long as there are enough buyers of the new debt then this potentially can go on forever. But the key point there is as long as there are enough buyers of the bonds.

For hyperinflation to occur it would require funding US government spending solely through currency printing, rather than government bond issues. This would require bond investors losing faith and not buying US Treasuries. Then the Federal Reserve could step in and fund government spending directly via currency printing or QE.

We are not there yet. But never say never.

A Historic First: Global Reserve Currency Hyperinflation

But, if hyperinflation were to hit the USA, this would be the first time a global reserve currency has experienced hyperinflation.

Therefore we have nothing directly to compare such a situation to.

We can only extrapolate from previous examples of high inflation in the United States…

How Did New Zealand Compare to the USA in the Inflationary 1970’s?

Comparing US and NZ Inflation Rates in the 1970’s

Let’s compare the US and NZ inflation rates in the inflationary 1970’s

1970’s NZ Inflation

1970's NZ Inflation


1970’s USA Inflation

1970's USA Inflation


So according to the official statistics, inflation was actually higher in NZ in the 1970’s. 204% versus 125% in the USA for the decade.

How About Interest Rates in the Inflationary 1970’s?

With high inflation we can expect that interest rates will also rise. They have to in order to try and keep up with the loss of value in the currency. Higher interest rates are needed to attract bond investors to continue to buy bonds in a currency that is losing value through high monetary inflation.

The United States experienced rising interest rates in the 1970’s…

Historical Interest Rates for 30-Year Fixed-Rate Mortgages

In New Zealand in the 1970’s (see the red dotted line area in the chart below), mortgage rates (red line) rose as the consumer price inflation rate rose (blue line).

Consumer price inflation and mortgage interest rates in New Zealand

However also note that real interest rates (the after inflation interest rate – green line) were actually negative for most of the 70’s. Because while interest rates rose, the inflation rate rose even more.

Overall if the USA was in a hyperinflation, it would be highly likely that interest rates would be rising there. Likewise also here in New Zealand too. As while the US Dollar remains the global reserve currency, the US effectively “exports” its inflation around the world.

However, it would also be likely that the real interest rate would be negative. So the average person would still be losing money on any term deposits they held in their bank.

Learn more: Real Interest Rates vs Gold Prices – What Can They Tell Us About When to Buy Gold in New Zealand? [2021 Update]

What About the New Zealand Dollar in a Hyperinflationary USA?

It may be easy to think that hyperinflation in the USA would mean that the NZ dollar would shoot massively higher in comparison to the US dollar.

But would hyper, or at least very high, inflation be only limited to the USA?

In response to the Covid-19 lock downs, just about every major central bank was engaging in currency printing. Along with Governments handing out stimulus payments and extra benefits. New Zealand was no exception…

See: What Will the Impacts of the COVID19 Lockdown be on the Global and New Zealand Economy?

For example, here’s a look at the US M3 money supply and also the New Zealand M3 measure…

USA M3 Money Supply


New Zealand M3 Money Supply


The change in M3 during 2020 was:

  • New Zealand about 12%
  • USA about 24%

Despite all the news of the massive currency printing happening in the USA in 2020, the change in the New Zealand money supply in percentage terms was also very significant.

Related: Comparing NZ Money Supply, Government Inflation Statistics, Property Prices, and Gold Prices for the Last 20 Years

So the first thought may be that the NZ dollar would be rising if hyperinflation were to strike the US. However, if very high inflation was in the USA, it would likely be occurring in much of the rest of the world too, including New Zealand.

So there is no a guarantee that the NZ dollar would be rising against the USD.

The direction of currencies is the sum of many factors. For example, interest rate differentials. How a particular economy is going compared to others, etc.

Now, let’s look at recent history. Many people would think that given what the US has experienced the past couple of decades, that the US dollar would be on a clear downtrend.

But check out this NZD/USD exchange rate chart…

It may look like the NZ dollar has been in a rising trend against the USD over the past 30 years. But the average exchange rate was actually around 0.65 (dotted red line). Not that much higher than where it sits currently around 0.60.


So it’s by no means definite that the NZ dollar would be shooting higher if a hyperinflationary period struck the USA.

Hyperinflation Isn’t Needed to Destroy a Currency

But we don’t need to see hyperinflation to destroy the purchasing power of a currency. Just a steady rate of inflation over many years will do…

Loss of purchasing power of the US dollar


As stated above, with the US dollar as the global reserve currency, all other currencies are linked to the US dollar. So the loss of purchasing power of the US dollar steadily spreads throughout the rest of the world too.

Inflation in New Zealand has of course increased over the past 2 years. The expectation back in 2021 was that this would be a passing phase due to COVID-19 disruptions.

Back then ANZ’s chief economist Sharon Zollner said:

“What’s happening is that shipping disruptions, rising global commodity prices, the higher minimum wage, and skill shortages “are creating something of a perfect storm”.

“It’s inflationary, but not growth-friendly, so the RBNZ will look through it as long as it appears transitory.”

Inflation expectations are rising in New Zealand

We can see in the charts above that the inflation expectations of businesses back in 2021, were much more accurate than the projections of the RBNZ and most economists.

So we have moved on from “transitory” inflation predicted in 2021, to a longer term period of inflation. Although the RBNZ and mainstream thinking is that this level of higher inflation that is expected to return to the 1-3% band in 2025.

But what if the currency printing combined with huge government spending programs globally this time causes price inflation of the last type we saw in the 1970’s? That is, inflation that continues for much, much longer than just 2-3 years. What if it was a decade of high inflation?

Then the New Zealand dollar would also look to be on the path to the destruction of its value.

Therefore, make sure you own some real assets to shield yourself from this ongoing loss of purchasing power. Assets with no counter-party risk like gold and silver.

8 thoughts on “How Would Hyperinflation in the USA Affect New Zealand? [2023 Projections]

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  5. Nick says:

    Can’t stand it when these economists blame systemic inflation on everything else but the real cause which is always government money printing!

  6. Glenn says:

    Yes Nick exactly. That’s about all we hear at the moment, it’s the weather, or supply chain disruptions, or shortages, or the workers wanting higher wages. Never owning up to the root cause that is currency inflation.

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