Improved Economic Growth Should Not Cause Increased Prices

Yet another misconception about the relationship between economic progress and overall prices is illustrated from this article from January by Bloomberg News' Jeanna Smialek and Victoria Stilwell claiming that "Improved U. S. Growth Lifts Inflation." The authors claim that the economy is gaining speed, as indicated by fewer jobless claims, increased manufacturing activity, and increases in spending on consumption, housing, and investment. In reality, however, we cannot point to economic growth as a cause of price inflation. If the economy is truly experiencing expansion, it is becoming more productive, so that we are producing more goods. If the supply of goods is increasing relative to demand, prices would be falling, not rising. If overall prices are rising, this is due to increase overall spending due to increases in the money supply.