What is inflation primarily defined as?

Inflation is primarily defined as an increase in the price of products and services over time. This definition captures the essence of what inflation signifies in an economy—it reflects a general rise in price levels rather than changes in individual prices for specific items. When inflation occurs, consumers will typically notice that the cost of living rises, as they need more money to purchase the same goods and services they could buy for less in the past.

This gradual increase in prices often results from various factors, such as increased production costs, heightened demand for products and services, or expansionary monetary policies. Understanding inflation is vital for investors and consumers alike, as it affects interest rates, savings, and overall economic health. Recognizing inflation as a sustained increase in price levels facilitates better financial planning and decision-making.