How is 'inflation' defined?

Inflation is defined as the overall increase in the price of goods and services in an economy over a certain period. This phenomenon means that, as inflation rises, the purchasing power of money decreases; in other words, consumers will need more money to buy the same quantity of goods and services than they did previously.

Understanding inflation is essential, as it affects many aspects of financial planning, investment, and economic policy. For instance, when prices rise consistently, it may influence central banks' decisions on monetary policy, affecting interest rates and economic growth.

The other options focus on different economic concepts: wage increases pertain to labor costs and income but do not directly define inflation; stock market values reflect changes in equity prices which are influenced by various factors, including investor sentiment; and interest rates relate to the cost of borrowing money, which can be affected by inflation but is not a direct measure of it.