A 10-million-dollar bill sounds like a lot of money, but in Zimbabwe, beggars in the street won't bother stooping to pick one up. In the struggling African nation, million-dollar notes are used as toilet paper, and 100-billion-dollar notes won't even buy a loaf of bread. Last month, the Zimbabwean dollar became so worthless that the reserve bank was forced to chop 10 zeros off it, turning 10 billion dollars into one.

Zimbabwe is a nation where inflation is completely out of control. The official rate is 2.2 million per cent — yes, million — but economists say it's actually closer to 12 million per cent. That means the price of groceries, clothes, gas and other household goods is doubling every week. The economic catastrophe is partly due to the instability resulting from the contested election of President Robert Mugabe, but there's more than that going on, because Zimbabwe is not alone.

Slowly, almost imperceptibly, inflation has infiltrated the developing world, and now it's tightening its sweaty grip. In Vietnam, where inflation recently topped 25 per cent, builders are walking out on unfinished jobs because they can no longer afford construction materials. In Venezuela, where the inflation rate is now higher than 30 per cent, a hapless government is encouraging consumers to haggle over prices in a desperate bid to keep them from rising. Meanwhile, in Argentina, which has had an on-again, off-again hyperinflation problem for decades, the unofficial rate has hit 25 per cent. In Russia it's at 15 per cent. China, Saudi Arabia and India are all heading north of 10 per cent. In fact, when measured properly, according to The Economist, two-thirds of the world's population will soon suffer from double-digit inflation.

All over the world, prices are soaring and currencies are crumbling — in some cases to the point where it no longer makes sense to lend people money. "On average, we estimate that global inflation will have gone up by more in 2008 than global interest rates," says David Wolf, vice-president and head of Canadian economics at Merrill Lynch Canada. That means the global interest rate is now negative. When you borrow money at a negative interest rate from a bank, then after inflation they effectively owe you interest.

So far, Canada has been spared the brunt of rising inflation. But it doesn't look like we'll escape much longer. In late July, CIBC World Markets economist Avery Shenfeld declared that "we've lost our inflation immunity," and warned that Canada's inflation rate will surge above four per cent by the end of the year. That's nothing compared to the crisis in poorer countries, but it does indicate that our central bank may be losing its grip. The Bank of Canada has publicly committed to keeping inflation between one and three per cent, but despite its best efforts, it admits we'll hit 4.3 per cent by early next year.

Does this herald a return to the 1970s, when inflation ran wild, and you were lucky to get a mortgage at 10 per cent? Most economists won't admit that's a possibility — but it's a scary thought. Back then, Led Zeppelin's Stairway to Heaven blared on eight-tracks, Bob Barker began hosting The Price is Right, new cars cost $4,000, and Canada entered its worst economic decade since the Depression. Years of rampant government spending followed by the expensive Vietnam War had weakened the American economy, and Canada's soon followed suit. As then-prime minister Pierre Trudeau twirled for the nation, our economy sank into one of the longest slumps in Canadian history, marked by soaring unemployment and, in 1974, the largest stock market crash of the last 50 years.

Now, as Canada gets ready to sail past the four per cent inflation mark, it's hard not to notice that our situation is eerily similar to the situation back then. As Donald Coxe, global portfolio strategist at BMO Financial Group, notes, the inflation crisis then was first kicked off by a sudden rise in food prices (partly due to Nixon's "Great Grain Robbery" of 1972, and partly due to the loss of the anchovy crop off Peru, which created a shortage in protein supplements for animal feed). That was followed by a hike in oil prices, which helped create an inflation crisis in developing countries. By 1972, inflation in Canada pushed past four per cent, just as it will by the end of this year. One year later, the inflation rate hit 14 per cent.

Chris Ragan, one of Canada's foremost experts on inflation, says there is no way things are going to get that bad this time around. Ragan's opinion is that we've learned too much since then about how inflation heats up and how to stop it. Unfortunately, however, he says that stopping it still isn't easy — in fact, it could be excruciatingly painful.

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