Most people think of inflation as a rise in the price of goods and services.  The published measures of inflation (RPI and CPI) measure the rise in the price of a basket of goods and services.

However economists define inflation as an increase in the amount of money in circulation (literally inflating the stock of notes & coins in circulation).  Some people deny there is a link between an increase in the money supply and RPI/CPI.  The Bundesbank firmly believe that a link exists and have passed this belief on to the ECB which manages its policy by keeping one eye on the growth in the money supply.

A simple explanation of why the money supply does in fact affect the price of goods & services runs as follows:

Strictly inflation is defined as an increase in the money supply. Assume that increasing the money supply (by printing money) does not cause cause a rise in the price of goods & services. Then a government could print as much money as it likes and use the money to acquire ever-increasing amounts of goods, services & assets. Plainly this could not last for ever and therefore there is a tipping point beyond which printing more money will cause the price of goods & services to rise.

The problem for central banks is that nobody knows precisely where the tipping point is – which is part of the reason why central banks have such a tricky job in meeting their inflation targets.