How is inflation defined?

Inflation is defined as the rise in the general level of prices for goods and services in an economy over a period of time. This definition emphasizes the overall increase in prices rather than changes in specific sectors or products. Inflation is typically measured by indexes such as the Consumer Price Index (CPI) or the Producer Price Index (PPI), which track price changes for a basket of goods and services that reflect consumer expenditures.

Understanding inflation is crucial because it can influence purchasing power, savings, and economic policy. When inflation rises significantly, it can erode the value of money, meaning that consumers need to spend more to buy the same goods and services they could purchase for less in the past. This situation can lead to changes in monetary policy by central banks, such as adjusting interest rates to either stimulate the economy or cool it down.

While wage increases and GDP growth can be affected by inflation, they do not themselves define inflation. Wage increases might happen due to various factors, including labor demand and cost of living adjustments, but they do not directly capture the broader trend of rising prices across the economy. Similarly, GDP growth reflects overall economic activity and output, rather than the specific issue of price levels. Thus, the definition that focuses on the general rise in