Opinion: Higher prices aren’t always a bad thing. Sometimes they nudge producers and consumers toward necessary changes

PRINCETON, N.J. —In response to recent concerns about resurgent inflation, U.S. policy makers deny that there is any threat and insist that expectations are “well anchored.” Any recent price spikes, they argue, will prove temporary, arising from one-off shortages that will be resolved when life returns to normal after the pandemic.

Such rhetoric suggests a need to step back and think about what is meant by inflation and its opposite, deflation. From Barron’s: The Chip Shortage Could Be on Its Way Out. Here’s Where Things Stand for the Auto Industry. Prices are signals What higher gasoline prices RB00, -0.06% will do is signal to consumers that it pays to reduce one’s fuel consumption and dependence on fossil fuels. That message aligns nicely with a wider recognition that the economy urgently needs to shift away from carbon-intensive energy sources. Again, we should allow prices to perform their proper function of guiding consumers’ behavior and future consumption plans.

Historically, major accelerations of globalization have often been accompanied by inflationary surges, each of which has led politicians and consumers to cast around for culprits. In the 1850s-’60s, rising prices were interpreted as a response to gold GC00, -0.01% discoveries or financial innovation following the development of new types of banking. In the 1970s, U.S.

This monetary-policy consensus was appropriate for a stable world in which there had been no radical shocks for many years. One of its key advocates, then-Bank of England Gov. Mervyn King, described the era well when he coined the acronym NICE: noninflationary continuing expansion.

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