How is inflation defined?

Inflation is defined as the rate at which the general level of prices for goods and services is rising. This concept reflects the increasing cost of living and the decreasing purchasing power of money over time. When inflation occurs, each unit of currency buys fewer goods and services, which means that consumers pay more for the same items they could have purchased for less in the past.

The definition captures the broader economic phenomenon where an increase in overall prices is typically measured by an index, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI). Monitoring inflation is crucial for both policymakers and consumers, as it affects economic decisions, interest rates, and savings.

The other options focus on related but distinct economic concepts. While production costs can impact inflation, they do not define it. Similarly, the amount of money in circulation can influence inflation, but it does not constitute a definition. Lastly, increases in wages can be influenced by inflation, but they are not synonymous with it, as wage growth can occur independently of price level changes.