More small-business owners expect bleaker business conditions six months from now than expect to see an improvement—35% more, to be exact. That is the somber message of data released Tuesday in an annual survey from the National Federation of Independent Business.

From January to October 2016, the prediction in the Small Business Optimism Index Survey for business conditions six months ahead was never positive. Then, small-business owners’ prediction for the next six months was never negative for over four years—until December 2020, when it dipped that way. Ever since, the outlook has remained underwater.

Inflation registers as the No. 2 biggest problem faced by small-business owners (after the quality of labor), with 22% saying inflation is their biggest problem.

That is 21 percentage points higher than the 1% who named inflation the biggest problem one year ago. Even more alarming, it is the highest percentage since 1981.

Inflation is a key ingredient in calculating a country’s economic freedom in The Heritage Foundation’s Index of Economic Freedom; it is the largest contributor to monetary freedom, one of the 12 subscores in Heritage’s index. The 12 subscores, averaged together, determine the overall economic freedom score for each country listed in the index. (The Daily Signal is the multimedia news organization of The Heritage Foundation.)

Price stability without interference from the government is the ideal state for a thriving economy. But the Federal Reserve has inflated its balance sheet for years now.

Total assets owned by the Federal Reserve rose from under $4 trillion as of Oct. 21, 2019, to $8.8 trillion by Jan. 3, 2022. To put that into perspective, the size of the U.S. economy was only $20.9 trillion in 2020. The Fed’s $4 trillion in 2019 was already too high.

The Federal Reserve owns mortgage-backed securities, Treasury bills, and loans that it makes to banks, among other assets. When the Fed buys these items, it does so with money that previously did not exist.

That means more dollars are created, sloshing around the economy, and dollars are more numerous than before although the size of the economy has not changed. That dilutes the value of money and causes prices to soar.

In the words of the great economist Milton Friedman:

Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.

Friedman argued that you cannot find inflation anywhere in the world where the supply of money had not been increased, or the growth rate of the supply of money had not increased.

Inflation hurts many people—from the poor, who feel the scourge of higher prices; to the small-business owners responding to the National Federation of Independent Business survey; to the saver whose savings quickly become a wasting asset.

The small-business owner’s decisions are easier to make when they are based on accurate information. But out-of-control price increases in everything from spaghetti sauce to microchips make business planning quite unpredictable.

Running or growing a business in a high inflation environment can be economically perilous to a small-business owner, and make life worse for almost everyone else. That is one reason why monetary freedom as measured in the Index of Economic Freedom is a core pillar of economic freedom.

America is a better place because of a growing number of small businesses—not because of a growing amount of dollars floating around.

This piece originally appeared in The Daily Signal