nations generally have less inflation than other countries. Notice that although most
of the Latin American countries have significant inflation, it is present in many coun-
tries from a diversity of regions such as Turkey. If 1996, 1997, 1998, 1999, and 2000
are compared, it can be seen that inflation rates by country are erratic on a year-to-
year basis. An inspection of Exhibit 20.1 would lead to the conclusion that most
multinational companies probably have operations in some countries with high infla-
tion because there are so many of them.
20.3 INFLATION, HYPERINFLATION, AND HIGHLY INFLATIONARY. Both the In-
ternational Accounting Standards Board (IASB) and the Financial Accounting Stan-
dards Board (FASB) have defined a concept for severe inflation. The IASB calls it
“hyperinflation,” which is indicated by such characteristics as:
(a) The general population prefers to keep its wealth in non-monetary assets or in a rel-
atively stable foreign currency. Amounts of local currency held are immediately in-
vested to maintain purchasing power;
(b) The general population regards monetary amounts not in terms of the local currency
but in terms of a relatively stable foreign currency;20 • 2 ACCOUNTING FOR THE EFFECTS OF INFLATIONConsumer Price Index
95 = 100
1996 1997 1998 1999 2000United States 2.9 2.3 1.6 2.1 3.4
Canada 1.6 1.6 1.0 1.7 2.7
Australia 2.6 0.3 0.8 1.5 4.5
Japan 0.1 1.7 0.7 (0.3) (0.7)
New Zealand 2.3 1.2 1.3 (0.1) 2.5
Denmark 2.1 2.3 1.8 2.4 2.9
France 2.0 1.2 0.7 0.6 1.7
Germany 1.5 1.8 1.0 0.7 2.0
Greece 8.2 5.5 4.7 2.7 3.1
Ireland 1.7 1.5 2.4 1.6 5.6
Italy 4.0 2.0 2.0 1.7 2.5
Spain 3.6 1.9 1.8 2.3 3.5
United Kingdom 2.4 3.2 3.4 1.6 3.0
Poland 20.2 15.9 11.7 7.3 9.0
Turkey 80.3 85.8 84.6 64.9 54.9
Egypt 7.2 4.6 4.2 3.1 2.7
Israel 11.3 9.0 5.4 5.2 1.1
Argentina 0.2 0.5 0.9 1.2 (0.9)
Chile 7.0 6.5 5.3 3.3 3.6
Ecuador 24.4 30.6 36.1 52.3 96.1
Mexico 34.4 20.6 15.9 16.6 9.5
Paraguay 9.8 7.0 11.5 6.8 8.9
Peru 11.5 8.6 7.3 3.5 3.7
Uruguay 28.3 19.9 10.8 5.6 4.8
Venezuela 99.9 50 35.8 23.6 16.2
Source:International Financial Statistics: International Monetary Fund.
Exhibit 20.1. Inflation in the World.