What is the definition of "inflation"?

The definition of inflation is accurately captured by the concept of the rate at which the general level of prices is rising. Inflation is fundamentally concerned with price changes across a broad spectrum of goods and services within an economy over a period of time. When prices increase generally, purchasing power decreases, leading to a decline in the amount of goods and services that can be purchased with a fixed amount of money.

Understanding inflation is critical for evaluating economic conditions, as it influences central bank policy decisions, interest rates, and the overall standard of living. A balanced understanding of this phenomenon helps investors and policymakers make informed decisions about investments and economic strategies.

Other options might discuss elements related to inflation, such as labor costs, money supply, or currency value, but they do not capture the essence of inflation as directly and comprehensively as the correct choice does. For example, while an increase in the money supply can be a contributing factor to inflation, it is not the definition itself. Likewise, an increase in labor costs may influence prices but that is not the core definition of inflation either.