What is inflation?

Inflation refers to the rate at which the general price level of goods and services rises over time, resulting in a decrease in purchasing power of currency. This phenomenon occurs when there is an increase in demand for goods and services, a decrease in supply, or an increase in the costs of production, among other factors. When inflation is present, consumers find that each unit of currency buys fewer goods and services than before.

Understanding inflation is crucial for both individuals and policymakers because it affects economic decisions such as consumer spending, wage negotiations, and investment strategies. It also influences central bank policies, as maintaining a stable inflation rate is often a central goal of monetary policy.

The other options do not accurately capture the essence of inflation. A decline in the value of money over time is a symptom of inflation but does not define it. An increase in the value of currency and a decrease in consumer prices would suggest deflation, not inflation, since deflation indicates falling prices rather than rising ones.