Hello and welcome to Moneygirls Quick and Dirty Tips for a richer life.

I'm your host Laura Adams. Has inflation been on your mind? In this episode I'll

discuss what causes inflation and tell you about investment vehicles to help protect

your nest egg.

Inflation is a rise in the general level of prices of goods and services over time.

This is shown by the fact that during the 1940s in the United States

you could buy a loaf of bread for 15 cents and a new car for less than $1,000.

The value of a dollar can only be measured by its purchasing power.

As inflation causes prices to rise, every dollar buys a smaller percentage of a good or service.

If the inflation rate is 4%, then a $2 loaf of bread will cost $2.8 in a year.

After inflation, our money simply doesn't buy the same goods or services that it did beforehand.

This is why many people fear inflation and think of it as an evil force that must be tamed.

So what causes inflation?

Well, the most accepted idea about inflation is that it results from increases in the money supply of an economy.

To understand this monetarist view, imagine an economy where nothing exists except

loaves of bread and dollars printed by the government.

When more money is printed and gets into the hands of consumers, there are more

dollars in the economy available to buy the same amount of bread.

This will drive up the prices that consumers are willing to pay.

There are many measures of inflation, but the most well-known is the Consumer Price Index or

CPI.

The CPI reveals changes in retail prices of a basket of consumer goods such as food, clothing, and cars.

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