The variability of return caused by inflation, which erodes the real value of the return. Purchasing power risk is related to the possible shrinkage in the real value of a security even though its normal value is increasing. For example, if the nominal value of a security goes from $100 to $200. The owner of this security is pleased because the investment has doubled in value. But suppose that, concurrent with the value increase of 100 percent, the rate of inflation is 200 percent, that is, a basket of goods costing $100 when the security was purchased now costs $300. The investor has a ‘‘ money illusion’’ of being better off in nominal terms. The investment did increase from $100 to $200; nevertheless, in real terms, whereas the $100 at time zero could purchase a complete basket of goods, after the inflation only 2/3 of a basket can now be purchased. Hence, the investor has suffered a loss of value.