Hello and welcome to money girls quick and dirty tips for richer life.

Today's topic, inflation.

When it comes to wealth creation, inflation and taxes are the evil twins.

Together, they're the most fearsome foes you and I face in achieving a financially secure future.

For your money to grow in real terms, it needs to outpace the effects of both inflation and taxes. In this episode I want to focus on the first

and more sinister of the evil twins inflation. In the first four months of 2007, U.S. inflation, as measured by the Consumer Price Index,

went up at a 4.8% annual rate.

If you listen to episode 26 about the rule of 72, you learn that at this rate it would take only 15 years for your money's

buying power to be cut in half. That means that a $60,000 salary today would be worth only 30,000 real dollars in 15 years at this inflation rate.

Now that's seriously scary stuff.

Okay, so why do we have... Now that's seriously scary stuff.

Okay, so why do we have inflation?

There are different theories about the cause of inflation that have been debated by economists

for a very long time. However, economists generally agree that

inflation is associated with an increase in the money supply. That is, when the

US Federal Reserve issues more money, inflation tends to go up.

Two measures of US inflation that you'll frequently here used in the media are the

CPI and the core CPI.

CPI stands for the Consumer Price Index, which is a measure of the prices for a specific

bundle of goods that includes items such as food, clothing, and gas.

The amount of inflation is measured by the change in the cost of this bundle of goods.

The core CPI is this bundle of goods with food and energy removed.

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