Worried About High Prices? Blame Public Policies That Stifle Innovation

Worried About High Prices? Blame Public Policies That Stifle Innovation

Prices are going up. The year-over-year consumer price index (CPI) hit 5. 4% in June, which is more than forecasters expected. Even when food and energy are removed, prices are up by 4. 5% over the last 12 months, meaning everyone's dollars buy less stuff. Increases in demand and higher costs are two common reasons prices rise. Public policy also plays a role, and right now many public policies make things more expensive by stifling the innovation that could bring costs down. The 5. 4% increase in prices since last June is the highest increase in over a decade, causing fears about widespread and sustained inflation. Prolonged inflation is certainly possible, but we should not expect the kind of runaway inflation often seen in other countries such as Venezuela, where prices are rising by over 25% per month. Nobel-prize winning economist Milton Friedman taught us that high and persistent inflation that affects most or all industries at once is a result of bad monetary policy. In short, when growth in the money supply outpaces growth in goods and services, prices go up since there are more dollars chasing relatively fewer goods. Too much money in the economy increases prices across